Financing in 79911>Question Details

Michael Bulz…, Renter in Houston, TX

What happens if the Seller/Lender Contribution towards the Buyer's Closing Costs is greater than actual costs??

Asked by Michael Bulzomi, Houston, TX Wed Apr 27, 2011

Im in the process of closing. Here are the details:

Property Sale Price = $181,000
FHA Down Payment 3.5% = $6,335
Amount Financed = $174,665 @ 4.875% 30 year Fixed (Wells Fargo)

Out of Pocket:
Inspection (w/ Termite) $255.00
Appraisal = $470.00

Seller has Agreed to contribute 3% = $5,430
Lender will contribute 1.375% = $2,400
Total Estimated Settlement Charges are $7,027.91

1) Where does the extra money go (Seller/Lender Contribution is greater than settlement charges)? Does it get applied to the balance of my loan?

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Seller credits not used are kept by seller.

Ask the lender to lower your rate and reduce the lender credit to your advantage.

Talk to your lender. Talk to your realtor.
Figure it out.

Good luck
0 votes Thank Flag Link Wed Apr 27, 2011
This is one of loan structuring where an experienced loan officer will be of value. Since you are getting money credited from 2 sources, it would be wise for the loan officer to exhaust all of the seller credit first, then apply the lender credit secondly. Any excess lender credit may be used as a principal reduction whereas the excess seller credit may not.
Web Reference: http://WeFixRates.Com
1 vote Thank Flag Link Thu Apr 28, 2011
Michael,

The contracts are very specific as to where the money can be applied. Normally not to the balance of the loan. You need to get back with your loan officer to see if you can buy down interest rate and potentially use the extra funds for inspection report. You might also be able to try to spend the funds in some other way, but prepaying HOA fees, additional interest collected, additional taxes collected, or some other fees to eat up the unused balance of what seller has agreed to pay. You loan officer can walk you through this.
1 vote Thank Flag Link Thu Apr 28, 2011
Bruce Lynn, Real Estate Pro in Coppell, TX
MVP'08
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Michael:

It is best not to listen to agents from out of state who do not know Texas real estate contracts. Look to your specific contract - paragraph 12.A.1.b. details your agreement with the Seller.

(b) Seller shall also pay an amount not to exceed $__________ to be applied in the
following order: Buyer’s Expenses which Buyer is prohibited from paying by FHA, VA,
Texas Veterans Land Board or other governmental loan programs, and then to other
Buyer’s Expenses as allowed by the lender.

Note that it provides a maximum (not minimum) that Seller will contribute, that it is specific as to what it can be used for, in a very specific order.

The part you are concerned about is the "other expenses as allowed by the lender". Every transaction is unique. It will depend on the type of financing that you have chosen, your specific credit profile, and the maximum contribution that the loan type allows. You will have to have a minimum personal investment in the transaction.

Only your loan officer (who has all of the facts about your transaction) can answer the question of whether you can use the full amount of the contribution or not. Any unused funds belong to the Seller.

Do not think of this as "money lost". Instead, focus on the fact that you have bought the home that you want at a price that you can afford with little to no extra closing costs.

Enjoy your new home!
0 votes Thank Flag Link Wed Apr 27, 2011
Michael,
Ask your lender if the additional can be applied to lower your rate? The lender credit comes from charging an above par rate. If they lower the rate, much or all of this will disappear but you'll have a lower payment for the life of your loan. Find out.
0 votes Thank Flag Link Wed Apr 27, 2011
You have other cost, you have stamp tax on the loan, loan writing fee, Copy fees for the closing documents. By the time you are done there will be very little overage if any at all! Check the HUD=1 Statement a few days before the closing!
0 votes Thank Flag Link Wed Apr 27, 2011
I just had this happen on a transaction as the listing agent and my seller got an additional $1,000 at closing that they weren't expecting because the buyer didn't use all of their closing costs. Seller pays up to but not exceed negotiated closing costs, unless your contracts are written differently.
0 votes Thank Flag Link Wed Apr 27, 2011
Howdy Michael
Generally anything left over is not used therefore not given. Of course I do not know the exacts of your contract and mortgage company. There are agents out there that do have programs for cash in your pocket. You might want to ask me about!

So Michael, all these questions, are you ready to go now?
Web Reference: http://www.EPHomeSearch.com
0 votes Thank Flag Link Wed Apr 27, 2011
No. The remainder goes away. The seller or lender is only obligated to pay UP TO the amount of contribution.
0 votes Thank Flag Link Wed Apr 27, 2011
In some cases you cannot receive any money back(profit) from FHA financing. In trying to understand this case, it seems the Lender can probably refund the difference to you at closing. Do not believe either way it will go towards the balance of you loan. Your HUD1 statement and your Attorney will clarify these issues
0 votes Thank Flag Link Wed Apr 27, 2011
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