Financing in San Francisco>Question Details

Joshua.jansen, Home Buyer in 94611

Do seller credits cover Insurance & Daily Interest?

Asked by Joshua.jansen, 94611 Sun Nov 27, 2011

We are in a situation where our credits might exceed our closing costs due to a seller who would rather pay credits than fix work that should be done. My question is what closing costs we can actually offset with credits; can credits cover Insurance & Daily Interest? I believe it's pretty clear they cover Loan Origination, Escrow Fees, Title Insurance, Appraisal, etc.

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Seller credits, aka seller paid closing costs, are just that. You can use them for all your closing costs and your "pre-paids" which include your homeowners insurance, your taxes, any HOA transfer payments and monthly payments. Sometimes the seller credit exceeds the normal closing costs. If you run into this situation, get with your lender on this & they should be able to determine if you have enough to buy down your interest rate or if that is not the case, you can use the excess funds to prepay your HOA fees or property taxes.

Your seller credits cannot be used to increase your down payment. If you are using Conventional or FHA financing with an upfront mortgage insurance premium (UMIP), you can use a portion of the seller credits to pay down the MIP, or if you are using VA or USDA financing, you should be able to pay down their funding fee.

I hope that helps you with your dilemma. Please feel free to contact me if you have any further questions, I'd be glad to help.

All the best,
Ros

Roswell Moore, CMPS
Certified Mortgage Planner
480-422-5095 direct
http://www.ezAZloan.com

We are a Direct Lender, Mortgage Bank where we originate, process, underwrite, fund, AND SERVICE our loans, in-house, with FHA (starting at a 580 score AND still only 3.5% down), FHA Streamline loans (no minimum credit score, no appraisal required) Go Green rehab loans, HomePath, Investor Friendly (10 financed properties), VA, USDA, Jumbo, Conventional, plus, we allow Escrow HoldBacks!
1 vote Thank Flag Link Sun Nov 27, 2011
The seller credit can cover ALL the buyers closing costs. But if there is some left over it would have to go back to the seller, you cannot leave escrow with any more cash than your deposit.
0 votes Thank Flag Link Mon Nov 28, 2011
Hi Lance,

To clarity for others who may read this post, "PITI" payments are NOT allowed to be paid for by the seller. Only the "ITI" portion of that payment, Interest, Taxes & Insurance, can be paid by the seller, not any of the loan amount or Principal.

All the best,
Ros
0 votes Thank Flag Link Mon Nov 28, 2011
Joshua,

Generally speaking they will allow:

all closing costs: title fees, pro-rated PITI, HOA dues up to 12 months (some lenders will do more), and as Ivan pointed out you can also buy down the loan.

You should talk with your lender to see what they will allow and go from there.

Best Regards,

Lance King/Owner-Managing Broker
lance@fixedrateproperties.com
415.722.5549
DRE# 01384425
0 votes Thank Flag Link Mon Nov 28, 2011
Hi Joshua,

An option is to permanently buy down your rate using discount points. Usually longer terms are more expensive than ARM products. You can ask your mortgage advisor about the cost to determine if it's beneficial and a break even point. You will benefit on a monthly basis as long as you keep your mortgage instead of a one time benefit.

Ivan Diaz
Home Mortgage Consultant
Mortgage Solutions
100 Grand Ave | Oakland, CA
(415) 271-7740 cell
0 votes Thank Flag Link Mon Nov 28, 2011
As far as the lender is concerned, yes it can cover insurance & daily interest, and even your initial escrow account deposit (if you have one) for your property taxes & homeowners insurance. Some seller's can be picky depending on the wording in the contract, if it just says "Closing cost credit" then it may exclude items such as the insurance or pre-paid interest because technically those aren't closing costs, those are "pre-paid items"... so I recommend the term "Settlement costs" be used as that includes all costs to the buyer at settlement, inclusive of pre-paid items. But more often than not even if it does just say "Closing cost credit" the seller will still credit them against pre-paid items.
0 votes Thank Flag Link Sun Nov 27, 2011
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