Is it true that sellers can only contribute 3% of sale price to closing costs if downpayment is less than 10%?

Asked by SEL65, Los Angeles, CA Fri Nov 21, 2008

We are buying an REO for $275000, and the seller is allowing us $10000 toward closing costs. However, our mortgage broker just told us that recent changes in the guidelines mean that lenders will only allow 3% ($8250) of the sale price to be paid toward closing costs by the seller. Is this true? Where can I find more information?

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David Athert…, Agent, Deer Park, WA
Sat Nov 22, 2008
SEL65. Fred made a good point. Anything you do needs to be open and transparent and part of the contract. You get in trouble (fraud) when you start making deals outside of the deal. What is done with full disclosure is not fraud, but, it may not be permitted. You will have to sign a paper in the course of the transaction that confirms the deal is the deal and there are no side deals. Dave Atherton
Web Reference:  http://mycountryhomes.com
0 votes
Fred Glick, Agent, Mountain View, CA
Sat Nov 22, 2008
Yes, it has always been that way unless you are doing an FHA or VA loan. It's nothing new.

But, be VERY careful about playing around with the balance because you would be committing mortgage fraud by playing with the closing statement that you are about to sign (aka HUD1).

Consult a residential real estate attorney to make sure you are in compliance.
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David Athert…, Agent, Deer Park, WA
Sat Nov 22, 2008
sel65, This is always a shell game as you approach closing. You can figure a bit over to be sure all is covered or a bit less to make sure you do not leave any money on the table. I have not run into a hard 3 percent maximum myself, but, in the current market we are seeing regulatory oversight grow in leaps and bounds. Also, the lenders are very nervous and do not want to get nailed by some government employee who has a set of rules and is looking for any minor deviation he can use to bring sanctions down on their head. You are looking at this market condition for about 2 to 5 years. After the politicians get over blaming each other and the spotlight gets off to the next topic, the market, regulators and politicians will get together and the situation will de-stress. Right now, there is just too much heat in the kitchen. If there is about 1750 left over, you might look at things you need to buy after closing, fridge, stove etc. and have the seller provide those as part of the deal then use the cash saved to pay the extra costs. Remember, you are buying from an institution and there is a lot less flexibility AND personal property included can also be a lender no-no.

In the end, we can outsmart ourselves trying to save a grand or two and sabotage the deal which is really what is important. Work with your loan broker and your agent. Again, do not loose sight of the goal--getting into your home. 1750 dollars is a lot of money, but, in the context of $275,000, it is meaningless. Likewise, this home probably sold for 500k two or three years ago, so you are doing pretty good. THE BIG PICTURE is what is important. Good Luck. Dave Atherton
Web Reference:  http://MyCountryHomes.com
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SEL65, Both Buyer And Seller, Los Angeles, CA
Fri Nov 21, 2008
Thanks so much for your answers. We are already approved by a lender for a good rate, with 5% down, and are too close to closing to go shopping around. I only realized this by looking over our Good Faith Estimate again, and saw that seller CC was noted as $8250 instead of $10000. Whereas $10K would have covered almost all our costs, $8250 leaves us a bit short. I've asked the broker whether the difference can be applied to the tax impounds or subtracted from a mortgage payment. I am annoyed that this wasn't pointed out to us earlier, but we haven't signed the committment letter yet, or the GFE, so I hope there's still room to negotiate.
0 votes
David Athert…, Agent, Deer Park, WA
Fri Nov 21, 2008
Hi SEL65. Depends on the program. USDA will potentially let a seller contribute even more than the 6 percent, but, there are hoops through which one must jump. Also USDA is not available everywhere due to the goals of the program.

Typically closing costs for buyers run about 3 percent of the sale amount in my area assuming the numbers you mentioned. It might be possible to use some of the extra money by applying it to your taxes, your impounds. Remember, for every rule there is another rule that overrides the previous rule, you just need to find the rule. In the end, it might be best to just take a 1750 price reduction. Ask if the seller can prepay a payment for you. Get creative. Dave Atherton
Web Reference:  http://MyCountryHomes.com
0 votes
James Wheeler, , Tampa, FL
Fri Nov 21, 2008
We could get you the full seller contribution with a government loan. FHA rules allow a full 6%, even if you put down just 3% or less as a down payment. Give me a ring if you'd like. James Wheeler, 813-600-3428.
0 votes
Nicholas Car…, , Orlando, FL
Fri Nov 21, 2008
Hello,
Most lenders will follow this guideline, but not all. This is probably one of the best reasons to use a mortgage broker rather than going directly to a bank. An experienced mortgage broker will locate other options and lenders, such as mortgage bankers who usually service the loans themselves, rather than sell them to secondary market agencies. This usually permits these lenders to have more liberal guidelines, such as allowing more seller contribution. It can be done, just look for the right mortgage broker. Good Luck.
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