Financing in Lowell>Question Details

Ninfragile19, Home Buyer in Lowell, MA

My realtor suggested putting more money down as a deposit to get money back at closing.

Asked by Ninfragile19, Lowell, MA Wed Aug 5, 2009

I just had my offer for a condo accepted and signed for by the seller. I got a great price on it in addition to having the seller pay prepaids and closing costs. I wanted to put down 3% as a first-time homebuyer, which would be funded by a loan from my 401k. My realtor suggested putting down 5% instead and rather than having the bank finance the remaining 95%, have them finance 97% as planned, which would allow for the remaining 2% to be returned to me via a check at closing. Has anyone heard of something like this happening? I didn't think you could even do something like this.

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Christopher Lawton’s answer
Depends on the type of loan you have, only a certain percentage can be given back in the form of closing credits from the seller to begin with, then your mortgage may have a minimum of 3.5%, not many do 3.0%!
0 votes Thank Flag Link Fri Aug 7, 2009
Make sure your lender pays every prepay and escrow that he can find so that you do not loose out on any of the seller's concession. It would be a waste to negotiate it in your deal and then not get it. Your attorney can help you with while they prepare the HUD statement.

You seem to be in great shape so: Enjoy your new condo!
0 votes Thank Flag Link Thu Aug 6, 2009
When I was mulling over the offer, I was ready to up the asking price and the increased difference would go towards closings costs. However, my realtor did an analysis on what the other units in the complex sold for recently so we could make my offer comparable to those figures. My first offer was for $5,900 less than asking and seller would pay closing costs/prepaids up to $4,500. This represented a loss of $10,400 to the seller, so he countered with full asking price (no mention of the $4,500 in closings/prepaids). I agreed to full asking so long as he would pick up my closings and prepaids. Done deal.

I discovered this property while out with my realtor when I received an email on my phone notifying me it just hit the market that day. We were able to get the keys from the listing agent within 20 minutes and we were the first to see it and I loved it. The 5% down was, as others have surmised, probably gave the appearance of a strong offer to the seller, especially since the property was active for only a couple of hours and the seller figured he could unload the property quickly. As for the increased deposit, I spoke with the mortgage broker about it. She explained the whole money-in, money-out scenario in this initial process and that the overage would go towards closing costs, assuming they were not being picked up by the seller. However because they are, it is probable that no further funds are necessary for me to bring to the closing, so I would receive a check back for difference in what I deposited versus what was required as a deposit and any unused funds from the seller's contribution to my closings costs would be forfeited.

I will be hiring an attorney to go over the P&S and to represent my at closing per the suggestion of my realtor. I'm confident in my realtor and mortgage broker, both of whom I'm very please and fortunate to have working for me. If anything, I'm sure my attorney will be able to smooth out any wrinkles once the process goes to P&S.
0 votes Thank Flag Link Thu Aug 6, 2009
If your offer had not already been accepted, I could understand the 5% down to make your offer stronger. But if your offer has already been accepted, then there's no need.

As others have mentioned, the Masshousing program has a loan feature that allows you to treat the tax credit as a loan, so I assume your Masshousing lender will explain that option to you.

Good luck!
0 votes Thank Flag Link Thu Aug 6, 2009
Martine - it makes better sense now - I thought the concessions had to be factored into the sale price, and therefore into the appraisal. It's easy for new buyers to find this all rather confusing.

I have a question - do the condos have to be approved for this MassHousing program , like some need FHA approval, or does the program work for any condo?

Good luck Nin..........I still don;t understand the 5% versus 3% 401k loan.but - that's between you and your realtor!
0 votes Thank Flag Link Wed Aug 5, 2009
Nin, Debbie,

I am in Mass. The Mass Housing loan is a great tool to not have to put one penny down out of your pocket. You actually finance 100%. You are able to finance your $8000 tax credit, like a second mortgage (that you wil have to pay back within a certain time frame, otherwise interest will start accruing). These loans are just as difficult as FHA and not everyone qualifies for them, so great that you do!

The seller paying prepaids and closing costs ARE concession, even if they are signed of on in the P&S, that is were they always go. All my deals were sellers offer (or I negotiate it for my buyers...) closing costs, it has to go into the P&S. The lender wants to see what they are financing. If the appraisals does not reach the total sale price (f.e. 245K sale price 5k seller concession total sale price 250k. if the appraisal comes in at 245k, what is going to happen? Is the seller reducing the price with 5k? or will they tell you that you cannot finance your 5k closing costs?

It looks like you are getting a gift from the seller, but the lender looks at it differently, it looks like you are financing your closing costs. Since you are mentioning that you are getting a great deal, you will probalby be fine with the appraisal. This are good questions to ask your mortgage specialist.

Now my question to you Nin, why do you put 3% down out of your 401k if you can get the $8000 tax credit financing? Please ask your lender if that is an option, it will definitely save you money in penalties and interest on your 401k.

Martine Assaf - Virtual Homes Real Estate
http://www.virtualhomesmls.com
0 votes Thank Flag Link Wed Aug 5, 2009
OK - Nin your situation is unique to me.

Hopefully, someone will respond who is from MA, and might be familiar with the MassHousing program, and this unusual set up your realtor has suggested (which still boggles my mind). I have never seen an offer that includes sellers concessions that aren't included as part of the sale price, yet are treated as a part of , and included in, the contract.

Hope it all works out for you!
0 votes Thank Flag Link Wed Aug 5, 2009
I'm not going through FHA, I'm going through MassHousing for the loan. I didn't want to go through FHA due to the tougher restrictions on condos. Also, the closing costs and pre-paids are not concessions, the seller is paying for them as stated in the Offer to Purchase that the seller signed. The closing costs do not exceed 6%.
0 votes Thank Flag Link Wed Aug 5, 2009
Martine made a good point - make sure this will appraise out with the seller concessions added on, and that the condo complex is FHA approved! Also, the closing costs that the seller is paying can't exceed 6%.
0 votes Thank Flag Link Wed Aug 5, 2009
I am all ears, too, Michael. This idea seems convoluted at best.

Is this an attempt to try and divert some cash from your 401 into your pocket? Sounds like that to me.

Contrary to what Vibha said, this has nothing to do with making your offer look stronger, because it doesn't! You're not putting down more money, you're still putting down 3%. If you're going for a 97% mortgage, that's what you're going for regardless of how much is sitting in an escrow account! - all that matters is that you qualify and are approved for the 97% loan.

Have a chat with the mortgage broker, and see how he explains this to you! (then let Michael and me know!)

Good luck with your purchase!
Debbie Rose
Prudential NJ Properties
0 votes Thank Flag Link Wed Aug 5, 2009
My two cents:

To put more money down with your offer, as good faith money, might show a seller that you are very serious and are willing to "risk" putting more money down. This has nothing to do with "getting money back at closing". Why would you put more money in escrow (cash that you can probably use for something else) to get a refund (most probably without interest) at closing. Especially when you are taking money out of your 401k, that loan needs to be paid back (with interest).

I think that your realtor did not explain him/herself properly. From your info it looks like that with the money that you are putting down and the prepaids and closing costs paid by the seller, the realtor thought that you might get some money back at closing.

You mentioned putting 3% down, do you mean 3.5% for a FHA loan? If so, have you checked that the condo association is FHA approved. Please make sure with your lender that your condo will appraise high enough for the seller contributions to happen.

My suggestion: don't put down more money than necessary. If something goes wrong with financing and the seller feels that the fault is yours, you might loose your deposit. Deposits can not be refunded at the buyers request, both parties need to agree when and to whom escrow funds get released .

Also, after closing, check with your accountant to see if you can revise your 2008 taxes so you can receive your $8000 tax credit (to pay off your 401 k loan).

Last advice: Make sure to get an attorney to help you with the P&S negotiation.

Good luck!
0 votes Thank Flag Link Wed Aug 5, 2009
If you went to a store that sold apples for $1 and you looked in your wallet and found that you had a $1 bill and a $5 bill why would you give them the $5 bill? My point is why would you give them extra money just to have them give it back to you. If there is a mortgage professional out there that can shed some light on this, I'm all ears.
0 votes Thank Flag Link Wed Aug 5, 2009
All your Realtor is trying to do is to make your offer solid and acceptable offer. Nothing wrong with that at all. Seller feels secure in taking his house off the market in this slow time and you get a house at a great price. Perfect. Everybody is happy.
Web Reference: http://www.VibhaMehra.com
0 votes Thank Flag Link Wed Aug 5, 2009
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