Another newbie question regarding seller contributing towards closing costs

ISellRiverview · 08-10-2007, 11:10 AM

I have a buyer who's qualified for $185,000 with a 3% seller contribution towards closing costs on a 100% loan.

How does that work - how do I have to word that language in the offer if we need a seller contribution, and will most sellers in this market go for it?

What if they find a house for less than $185,000, does that then mean that they don't have to get such a large seller contribution and can just roll in closing costs?

I am just not completely sure on how that works.

BarryC · 11:40 AM

The verbage I usually use for this is:

"Seller to contribute up to 3% of purchase price towards buyers closing costs , prepaid items and / or other loan costs as allowed by buyers lender."

I add "as allowed by buyers lender," because there have been a few times where lenders have come back and not liked other forms of verbage used.

I have found that most sellers in this market will go for it. Usually, worst case scenario is you will have to increase the homes list price to get the seller to contribute towards your buyers closing costs (then you have to worry about the appraisal if the house was already priced right).

If they find a house for less than $185,000 the same will still apply. The rule of thumb (in my area anyway) is that it takes about 3% of the purchase price to close the home as far as closing costs, prepaids, etc are concerned. I'm assuming your buyers need as close as possible to full closing costs to get the home. You could negotiate price over closing costs, but having closing costs contributed means less money out of pocket initially for your buyer.

You can also get a precise estimate on all the closing costs, prepaids etc.. from your lender and replace the 3% with what the actual cost will be.

So, for example: "Seller to contribute $9000.00 towards buyers closing costs , prepaid items and / or other loan costs as allowed by buyers lender."

I hope this helps.

As always, check with your Broker for their opinion on how they would specifically like you to go about this.

ISellRiverview · 08-10-2007, 11:52 AM

Quote:

Originally Posted by BarryC

The verbage I usually use for this is:

"Seller to contribute up to 3% of purchase price towards buyers closing costs , prepaid items and / or other loan costs as allowed by buyers lender."

As always, check with your Broker for their opinion on how they would specifically like you to go about this.

I sent that exact language to my broker via email to see if that's what we use or if anything else is required. She's extremely picky so it can't hurt to ask, right?

Another question: One of the listings I pulled and called on for showing is a foreclosure, but yet it says in the remarks that the realtor has an interest in it. She says the sellers are very motivated. Wait, if its a foreclosure, isn't it bank owned? Maybe she meant pre-foreclosure? And if its a foreclosure, what kind of luck will I have getting a 3% contribution. It also says "lots of equity, room for closing costs" so I assume that means we could pay more than the asking price and get them to roll in the costs, as you said before right?

Malok · 08-10-2007, 12:14 PM

Passing language by your broker is a good idea if you are unfamiliar with the particular verbage that is preferred in your locale.

Regarding the foreclosure/pre-foreclosure property, you may just call and ask for clarification from the listing agent.

From the wording you described, I would be inclined to agree that it is pre-foreclosure - and that yes, they would have the ability to pay closing costs at closing.

Re-affirming what you believe to be the case with the listing agent couldn't hurt.

Morristown · 08-10-2007, 01:14 PM

Liane, be sure to talk to your Mortgage person about this buyer, as with what is going on in the financial markets, this buyer may no longer be able to get a 100% mortgage. The Federal Reserve just had to inject about 100 Billion Dollars into the banking industry as a emergency stopgap solution to keep things going. From what I have been hearing and experiencing their are many Mortgage lenders who have basically shut down 100% financing no matter what the credit rating of the buyer.

Be careful.

Jim

ISellRiverview · 08-10-2007, 02:52 PM

Quote:

Originally Posted by SummitNJ-Realtor

Liane, be sure to talk to your Mortgage person about this buyer, as with what is going on in the financial markets, this buyer may no longer be able to get a 100% mortgage. The Federal Reserve just had to inject about 100 Billion Dollars into the banking industry as a emergency stopgap solution to keep things going. From what I have been hearing and experiencing their are many Mortgage lenders who have basically shut down 100% financing no matter what the credit rating of the buyer.

Be careful.

Jim

Yep I talked to him today and he said the only thing we have to get is the 3% towards closing costs but everything else is a Go.

jasoncrouch · 08-10-2007, 08:09 PM

One other quick point to keep in mind when you are rolling in closing costs for the seller to pay on behalf of the buyer: the property must appraise for the desired sales price.

In other words, if you need to raise the sales price above the listing price to get the closing costs covered, make sure you feel that the property will appraise at the new, higher price. Otherwise, the financing will not be approved.

BarryC · 08:56 PM

Good advice Jason, but not totally correct. If the financing was approved, it will still be approved. Your buyer will just have to come in with the difference between the appraised price, and the sales price. I know, I know, really nitpicky. I just wanted to make sure that it was understood that there are other options. Having sellers pay closing costs really confused me the first couple of times I did it.

Dan Connolly · 08-10-2007, 08:52 PM

Quote:

Originally Posted by ISellRiverview

It also says "lots of equity, room for closing costs" so I assume that means we could pay more than the asking price and get them to roll in the costs, as you said before right?

I think that means you can offer less than asking price and they will still pay closing costs!

jasoncrouch · 08-10-2007, 09:48 PM

BarryC - You are correct. I guess what I was trying to say was that the financing would not be approved for the full sales price. As you said, there are other options. However, if they need the 3% in closing costs, chances are they won't have the funds necessary to cover the difference.

I had this happen about ten years ago with a small condo that I sold, and I remember that the buyer had to sign something stating that he understood was paying more than the appraised value. Is this still the case?

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