100% Financing and Earnest Money

[TakeMeHome]

If a buyer has money to cover the closing costs and has a pre-approved 100% loan, what happens to the money enclosed with the offer and how is earnest money handled?

My thoughts were that the money with the offer would go toward the closing and then any closing costs left above that amount could be "prepaid" as earnest money.

Anything above pre-paying the full estimated closing closts as earnest money would effectively be putting a down payment on the loan, right?

Also, what information should the seller be asking about the 100% loan? Should they be concerned if it is through a national bank chain? For instance, should they be asking to know the specifics of the loan program or even to talk to the loan officer about the loan?

Thanks for any insight...

[kensmith]

Earnest money shows up on the hud as a credit for the buyer. If it is more than they need for downpayment and closing costs then the buyer would walk out with a check.

Example: Buyer gives $5000 earnest money and they are getting 100% financing and the seller is paying all of the closing costs. The buyer would end up getting all $5000 of the earnest money back.

[kyle422]

The buyer would end up getting all $5000 of the earnest money back.

I don't think that there are any lenders that would allow the buyer to walk away from a closing with money. From my experience, the money would be used towards settlement costs, which could include lender's fees, appraisal, inspections, title fees, and surveys and if anything else was left over it would go towards principle.

[kensmith]

If the buyer put up the $5000 they can walk away with it. Just did one like this 3 weeks ago, the example was from that deal.

The earnest money is just to make a contract legal and to show good faith to the seller. It isn't the banks money and the bank can't tell you what to do with it. If they approved a 100% loan and the sellers agreed or the lender agreed to pay all the closing costs you get your money back.

[HMiller]

It's rare but I've recently had a client walk away from a closing with a check. The original deal included a seller's concession and the buyer was getting 95% financing. He changed the financing to 100% and between the concession and the earnest money deposit he came away with a nice little check.

[judyo]

I've also seen buyers walk away with checks at closing, and it wasn't just an "overage" check. It was because of low down financing and any credits given the buyer, including earnest money and seller concessions.

In IL buyers also get a credit for real estate property taxes as our taxes are paid a year in arrears. I'm not sure how that's handled in these kinds of situations, but a bank can only hold so much escrow so they can't take more than is legal, and if the buyer would be due a credit because of the property tax, they'd get that, too.

As far as the seller getting further information regarding the mortgage, not all mortgage companies will speak to sellers or their representatives as they are working for the buyer. So it depends on the company.

[kensmith]

As far as the seller getting further information regarding the mortgage, not all mortgage companies will speak to sellers or their representatives as they are working for the buyer. So it depends on the company.

It is against the law for the Mortgage company to talk to a seller about the buyers business. The Privicy Act covers this, heck a bank will not even talk to a spouse if they aren't on the account.

[judyo]

As an agent, I have had some very friendly and informative loan officers give me information relating to mortgages on my listings where I was only representing the seller. I've also had places not give me anything (usually in the form of never returning my calls), but most do share some info.