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James, Home Buyer in Roanoke, VA

What happens to the difference if the closing costs are less than what the seller is required to pay?

Asked by James, Roanoke, VA Sat Jun 12, 2010

My mortgage is the same as the selling price with the seller agreeing to pay most or all of the closing costs. I am required to pay a funding fee and discount points per my mortgagee and the remainder of that cost goes to the seller.

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If your contract stipulates that the seller is conceding an amount specifically towards your closing costs, then he/she will pay whatever portion of that amount can be attributed to closing fees. If the closing fees exceeded the amount negotiated, the seller would only pay the amount agreed to, and you would have to cover the difference. If less than the amount, then the seller pays that lesser amount, and any difference goes to no one. The mortage rep I use most advices me to include in concession language something to the effect of "....closing cost, prepaids and/or points" -- the idea being to broaden the definition of the concession to cover these other potential fees. Consult with your attorney about the specifics of your contract, you answer will lie in the wording of that concession.

Best,
Jeanne Feenick
Unwavering Commitment to Service
1 vote Thank Flag Link Sat Jun 12, 2010
Correction to Scott, the seller is not paying 3% of closing costs, but 3% of purchase price towards closing costs. What I like to have the contract read is that the seller will pay "X" amount of dollars towards closing costs. Such as, purchase price is $300,000, seller will contribute $9,000 towards closing costs. These can definitely be used for points. Not sure about funding fee. It is desirable for a seller to pay to buy down your rate in points as it is a way for you to qualify. Also, as long as you pay your required minimum of 3.5% down on an FHA loan, the only way for you to be disqualified for the financing is if the purchase price is increased for any reason, not decreased. If there is an ammended contract that lowers the purchase price, your amount down will increase your percentage, not decrease it. Let's say I am using my scenario above, and you are putting down $10,500. Your closing costs come to less than $9,000, so you ammend the contract to reduce your price to, let's say $299,000, with only an $8,000 seller's concession. Your $10,500 can still be used, and you could lower your loan amount. The problem is that if this is discovered at the closing table, it would require additional underwriting and disclosures.
0 votes Thank Flag Link Sat Jun 12, 2010
It depends on 2 things, the first being what your bank will allow, most programs are up to 3% and some are up to 6% of the sales price. The other factor is what you agreed to in your purchase and sales. It should be wrotten seller to pay 3% of closing costs, prepaids and/or other costs associated with this purchase. Your agent should be guiding youthrough this, if not simply call your loan officer for guidance. good luck with your purchase.b
Web Reference: http://www.ScottSellsNH.com
0 votes Thank Flag Link Sat Jun 12, 2010
James,

Speak to your closing attorney to have him/her review the closing costs for both the selling and buying side.

Depending on the type of loan, sometimes buyers are required to put a minimum down and if the seller pays all the closing costs that can reduce the buyer's money down enough to be disqualified for the loan.

I am not an attorney - so my advice is to contact your closing attorney.

Regards,
Maureen
0 votes Thank Flag Link Sat Jun 12, 2010
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