Our Declaration of FHA Financing !!! - Issues regarding the 3% seller concession proposal - Can we fight FHA Loans with solutions?? - YES !!!

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IMPORTANT CALL TO ACTION - Hot topic - Reduction of seller concessions on FHA loans to 3% max



I wrote this article the other day, HUD seeks public comment on three main issues for FHA loans. - The main issue and focal point is that FHA wants to reduce the seller concession from 6% to 3%. I can understand why. Two reasons I can think of :

1. The real estate market has crashed and home values have dropped significanly in some areas, that homes are upside down. Some feel that with a FHA mortgage, that you basically start underwater if you need to sell quickly.

2. HUD/FHA feels that home values are inflated some, pushed a tad higher to cover the seller concessions so that it actually doesn't come out of the seller's pocker per se. This is an never ending argument by several.



troubling questions about FHA loans to reduce seller concessions

So we have a slight debate from some thinking that anyone receiving 3% to 6% seller help is to much. And then we have another side that feel that making 3% as a maximum percentage, that it could cripple an already devistated real estate market.

The basic argument - 6% is just to much.  Okay, I agree, on a $300,000 house, because that would be $18,000 in seller help. Not many sellers actually would be willing to give up $18,000. Many don't even have the room to do this.

Reality depending on certain real estate markets - What about those homes that are selling for $50,000 to $100,000. AT 6% that would be a seller concession from $3,000 to $6,000. Make it a maximum of 3% and it drops from $1,500 to $3,000.



The defense to such an argument -   Example - $80,000 home. If the seller could on give 3%, that is only $2,400 in help.  The down payment alone would be $2,800. Depending on taxes, how many months that must be escrowed, etc, etc, you could be looking at $3,400 to $4,000 in closing costs.  In the state of PA, 12-13 months of escrows must be collected and there is either a 1% to 2% stamp tax that must be paid by the buyer. So you add that into this equation, that is another $800 to $1,600 just on the stamp taxes. And this example is not even including points or lender fees. I would rather have the borrower keep at least $2,000 or more in their account as cash reserves.  You take that away from them for the costs, then you have nothing.  What if something happens, then what? Just food for thought.

Important Reminder : Keep in mind, real estate is local and each state is different on their different fees that must be collected. Some states have state stamp taxes, transfer taxes, or require taxes to be escrowed for 6 or 13 months. This greatly adds to the buyers costs.




Jeff Belonger's solutions :

Why don't we come to terms, meet half way. How about impossing checks and balances if a borrower gets 3.01% to 6% in seller help. Or have a graduated scale. Maybe add some specific clauses.


1. Appraisal Values - FHA is concerned about values being pushed higher to cover these concessions. Why not get 2 full appraisals. An appraisal is an opinion of value determined by several factors, to include average market values and true comparisons. Real Estate Appraisal by wikipedia.

2. Credit Scores - This one could be tricky and hurt the less fortunate. But if are to receive more than 3%, that you have to have higher credit scores, possibly making a graduated scale.

3. Cash reserves - That the borrower must have at least 2 months in reserves in order to receive from 3.01% to 4%. Maybe 4 months to go from 4.01% to 5% and so on.



SUMMARY : SOme of my solutions might seem harsh or hurt those that don't fit.  But isn't this much better than just reducing the seller concessions to 3 percent no matter what? Let's think this through, come up with a comprimise. I feel that if we don't do this, that it will cripple our economy even further.... We need not be rash in our decision making and not just for political agendas. What se thee?




List of solutions from other comments :

list of solutions regarding the seller reduction on FHA loans by FHA/HUD


     1. From Julie Odum - comment #2 - In my comment to HUD, I recommended a sliding scale for seller help. 6% for sales under $125,000, 5% for 125-150k, 4% for150-175 and 3% for 175+k.

     2. From Tim Bradford - comment #9 - Similar to rules on Reverse Mortgages - A 3% limit with a mininum of $3,000 being allowed and a Maximum of $6,000. 

     3. From Drew Sygit - comment #21 - Tie the seller concessions above 3% to other lower risk identifiers.  Examples: to get the 6% require either higher credit scores, more reserves, maybe 5% down instead of 3.5%, allow lower DTI ratios, etc.





call to action - comment on the FHA loans proposal of 3% for seller concessions


Here is the actual page to go and make your comments - Comments for reduction of seller concessions and new loan to value with credit scores - Click submit a comment which is on the right side of this page, in blue.





CALL to ACTION : Send this to other agents and loan officers.  Don't hesitate to reblog this, to get the message out. And you can even copy the link to this post in your comment when commenting to FHA/HUD, so it repeats the message to FHA, the government, and to others that fight this issue.  Link :





Please don't hesitate to leave your own solutions in the comments below, so others can read them.  I will then come back and list those solutions in this post.  Thanks & thanks for your support.


I will be forwarding this post to FHA, to HUD, and to some members of congress before the 30 days is up.  This way they can have all of our solutions rolled up into one.  Just like the Declaration of Independence. Why not make it our Declaration of FHA Financing !!!






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Follow me on:

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For more information on FHA loans, please go to this link. The FHA Expert

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!



For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors


Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc


Re-Blogged 13 times:

Re-Blogged By Re-Blogged At
  1. Barbara-Jo Roberts Berberi, MA, PSA, TRC - Greater Clearwater Florida Residential Real Estate Professional 07/17/2010 06:32 AM
  2. Ed Silva 07/17/2010 09:16 AM
  3. Brett Pehrson 07/17/2010 12:22 PM
  4. Marney Kirk 07/17/2010 04:09 PM
  5. Loan Survivor Real Estate Financing Expert 07/18/2010 06:43 AM
  6. Roland Woodworth 07/18/2010 08:52 AM
  7. Suzanne McLaughlin 07/19/2010 05:00 AM
  8. Dana Devine 07/20/2010 02:12 AM
  9. Brian Clayton 07/20/2010 03:27 AM
  10. Brandon Snider 07/20/2010 04:19 AM
  11. Gabe Sanders 07/20/2010 05:09 AM
  12. LINDA SABO 07/20/2010 05:10 AM
  13. Marte Cliff 07/20/2010 06:25 AM
  14. Marty and Laurie Gale 08/04/2010 03:11 AM
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POSITIVE ATTITUDE for the Weary Soul
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans


TODD & DEVONA... .  my pleasure and thanks for reblogging this, for getting the word out.

DREW.... .  some have agreed with not seeing the value in a 2nd appraisal. And you bring up a good point, which I included in the solutions above.  Thanks for sharing this and for commenting to FHA.

DEBORAH... .  well, if FHA were to reduce the seller concession, but that we could compromise some, what would you offer FHA?  I understand that you said just leave it alone, let it be.  But that doesn't look like it will happen. So if that is the case, we need to present solutions.  I know you didn't mention any, but if FHA said.. "hey Deborah, I won't reduce the seller concessions if you give me one good solution."  Then what?  thanks and thanks for the thank you and for your feedback.

ROLAND.... .  thanks for the polite compliment and for the support.


Jul 18, 2010 09:11 AM #24
Renée Donohue
Savvy Home Strategies Realty, LLC-REALTOR®-Estate-Probate - Las Vegas, NV
Las Vegas Real Estate Broker - www.urLVhome.com

Thank you for writing this series to get the word out and THANK YOU for including it for my readers in my outside blog.  Much appreciated!

Jul 18, 2010 09:14 AM #25
David Krushinsky
Skyline Home Loans - NMLS 202115 - Phoenix, AZ

Impound the reserves and have them ready for the tough times ahead.

Jul 18, 2010 11:22 AM #26
Joetta Fort
The DiGiorgio Group - Arvada, CO
Independent Broker, Homes Denver to Boulder

I hate the idea of impounding the reserves - we already have escrow accounts, that's just punishing people who are responsible with their money and taking away their ability to make their own decisions with their own money. I hope the decision makers keep in mind that these changes will be with us a long time, so making decisions on the basis of what's common right now (i.e., we don't have people paying points now to get interest rates down) may not be the case a year or two from now.

Jul 20, 2010 02:36 AM #27
Tim Bradford
Cleveland, OH
NMLS 250013

Jeff,   Adding to my earlier comments.    I believe that FHA/HUD and the government regulators need to recognize that "REAL ESTATE IS LOCAL"  and "Closing Costs are Local" There is not one size fits all.   I believe lenders related fees are basically the same.   I also suspect that Title and Escrow fees would be similar from area to area.  The costs are likely similar, the only difference is who pays what.  Here in Ohio, I suspect the change would not affect buyers as much as elsewhere because as part of the contracts used sellers typically pay for the title exam, half the escrow fees, half the Owners Title Insurance Policy and Real Estate Taxes are prorated at title transfer in a way that actually provides a net credit to the buyer in most cases.  

Jul 20, 2010 03:17 AM #28
Lee Robinson
Highlands Residential Mortgage - Bentonville, AR
Close on Time All the Time

If FHA feels they have to reduce seller concessions I think Julie Odum has a good solution.  It is better than the alternative.  The buyers will start paying higher interest rates on the small loans, so that the lenders can absord the costs.

Jul 20, 2010 03:35 AM #29
Nicole Fleming
FC Tucker Emge - Henderson, KY

Comment sent.  Thanks for bringing this to our attention and staying on everyone to respond.  I know this will cripple the housing market in our area.

Jul 20, 2010 03:40 AM #30
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans


RENEE... .  my pleasure and thanks for your continued support and for your input & kind words.

DAVID.... . that isn't bad, but I know some may frown about this, in giving the money up to someone else... the reason being. .. if I need that money, how do I justify it?  I think this could be an issue and a possible delay in getting your money quickly.  Just my opinion.. thanks for your input.

JOETTA... . I think you are referring to David's comment above you?   I would agree with you on that one. And yes, making this change now will be with us for some time.. and things change.  Thanks for your insight and feedback.

CATHY.... . I agree, that it ultimately hurts the consumer.  But in regards to raising of the rates? Most of that is controlled by the coupons that are sold on Wall Street.  If there is no true value for a higher rate, which at times, has been, then the rates will be capped. What I mean by this is that there are certain spreads between the rates and the coupons offered for such rates.  A lender just doesn't say, well, I am going to charge 6% and give back 4 pts when the average rate is 4.625%.  These rates are set by Wall Street depending on the market and investors bid for them.  thanks

TIM.. . I think this is one huge problem with HUD and our gov't, that they don't realize this or think it through.  They might just look around them and nothing outside their comfort zone. As far as who pays for what, that is a huge issue.  Hence why I gave my example for PA... 12 to 13 months in escrow for taxes and on top of that, either a 1% to 2% state stamp tax paid by the buyer.  Maryland is expensive on the specific state stamps.. thanks for your feedback.

LEE.... . I think Julie's solution is a good one. Some asked me why we would want to give back some. Well, as you stated, if FHA feels they need to do this, we need to give back something to make it work, to compromise.  thanks


Jul 20, 2010 03:53 AM #31
Sybil Owens

I understand and appreciate the concerns of reducing the buyer's assistance, but just to play devil' advocate....

Why is it mandatory for a seller to have to pay any of a buyer's closing cost? If you are planning on purchasing a home, isn't it your responsibility to know ALL of the cost associated with this purchase, and to save the funds necessary? Most sellers need all that they can get out of the sale of thier property, and adding closing cost back into the sales price often puts buyers over thier limits.

Personally, I think this is part of the issues we are trying to overcome. Buyers qualified for more house than they can afford by pushing off some of the responsibility onto someone else.

Don't get me wrong almost all of my financed buyer's are requesting or requiring closing cost assistance, and I will do what is necessary to make the sale. But I think this is something the lenders are pushing and using to qualify people for more than they can afford.

I know it is hard to live within our budgets, but this is something I think that we have to learn to do to help our long term financial and market stability.

Jul 20, 2010 04:25 AM #32
Gary Steuernagel ASSOC. BROKER, ABR, CRB
Keller Williams Southwest - Sugar Land, TX

I see a lot that I agree with in Sybil's comments (#33).   If the buyer needs 6% to make the deal happen, and the seller can't afford to reduce their net by 6% then the only option is to raise the price of the house to cover that difference.  Now we get into the issue of will it appraise, or will the buyer qualify for that increased value (LTV)?  Since many home values have gone down in many markets, many sellers can't afford to eat that extra 2 to 3% as they are already bringing money to the table to be able to close.

The lenders, as Sybil has stated are the ones who are really pushing for allowing to have 6%, but they forget about the other issues of both sides of the transaction.

Jul 20, 2010 05:16 AM #33
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

I do not think it will have that big of impact around here.  It is a sellers market and I do not think many homes are selling with more than 3% concession. 

Jul 20, 2010 05:31 AM #34
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans


NICOLE... . my pleasure and thanks for stopping by... I hope you commented on the site.  thanks


SYBIL & GARY.... . I am lumping you both together since Gary agreed with you Sybil. Let's start off with this statement.  In my opinion, I can see your side of things and partially agree.  Keeping in mind that some lenders abuse the seller concessions, are greedy, and pocket the extra money as profit. But for me, it goes deeper than this.

Sybil, you had stated... "Why is it mandatory for a seller to have to pay any of a buyer's closing cost?"

It's not mandatory... many use this feature though.   I agree that buyers should know the costs, but depending on savings and such, it's not as easy to save now than it use to be. On top of that, yes, sellers need the money.  But each seller and buyer is different... so is each house.

What I am trying to say is that I am not asking anyone to push the value of the house to make this work.  If the value is there, or that there is more value, then why not... why can't the buyer ask for this kind of help. I understand the pros and cons... but that is the problem with this whol argument. Some only see one side and others see the other side. We need to focus and understand both sides and work on it together. I will say this, it will kill some real estate markets.  And then what? Those other homes sit on the market longer... more foreclosures sit around... etc, etc.   People can't buy and the market gets worse.

Let me throw this out there...  people are now complaining about not having skin in the game and or the fact that they shouldn't get so much seller help.  Nobody complained about this 10 years ago...  I understand about pushing the values, I truly do. 

Let's take this one step further... the borrower qualifies... they have good ratios... have proven a good paying track record... do have some assets saved... they should be able to buy, but will either come up short with assets or.... wouldn't you want them to keep those assets in the bank?  As reserves? 

ANyhoo... not all lenders are pushing for this... the real estate market is.  Again, each market is different and it will kill some markets.  Plain and simple, at least in my opinion. Thanks for the feedback and input from the both of you..


GENE.... .  again, each real estate market is different.  In my opinion, it will hurt some real estate markets.  thanks


Jul 20, 2010 06:12 AM #35
Marte Cliff
Marte Cliff Copywriting - Priest River, ID
your real estate writer

You've made excellent points and given viable solutions - as have your commenters. It seems like the thing the "rule makers" never consider is that real estate is a local thing and one size does not fit all.

This is definitely a subject to be considered serioiusly by real estate professionals, not politicians. You are the ones seeing and understanding the effects of each new regulation.

Jul 20, 2010 06:22 AM #36
Tom Waite
Thomas Waite Real Estate Broker - Cypress, CA
So Cal-Apartment Bldg Investments

Well thought out and presented ideas.

You have concentrated on important concepts.

Great blog!

Jul 20, 2010 06:37 AM #37
Stephen F. Mondile
Evesham Mortgage - Evesham Township, NJ
For Honest Mortgage and Insurance Services

Unfortunately I believe that all suggestions will fall upon deaf FHA ears. (Just my feelings) With that said, I would offer this...

Allow the seller concession equal to the buyers down payment not to exceed 6%. The Minimum down payment of 3.5% would allow a concession of 3.5% and so on up to 6%.

If/when FHA changes the down payment requirement for the lower credit scores (IE:10%) then the buyer will be limited to a concession of 6%.

FHA is concerned with insuring homes that maybe losing value; only to increase their insurance exposure with an increased sales price via seller concessions. FHA is in a bit of a bind with this.

They (FHA) have to look at this logically as to not curtail home sales; and to allow the seller to match the buyers "chip in the game" may be an amicable resolution versus simply chopping off 3% of the existing seller concession.

Jul 20, 2010 08:01 AM #38
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg IL Area Real Estate

Thanks Jeff for providing this great information. I did my part the other day & I'm glad we got the chance to voice our opinion.

Jul 21, 2010 01:56 AM #39
David Krichmar
www.DaveYourMortgageGuy.com - Legend Lending - Sugar Land, TX

Thanks Jeff.  I am asking everyone to vote on this.  not only is it an important topic, but it is great that FHA is giving us all a chance to give our opinion. 

Jul 21, 2010 04:03 AM #40
Jennifer Dulmaine
Keller Williams Realty - Spencer, MA
Seth Campbell Realty Group

Jeff, this is going to impact a lot of buyers...in turn impact our real estate business. Thank you for this and I gave my opinion via your link.

Jul 22, 2010 12:53 AM #41

I disagree with the statement on the higher priced markets. In New York we are subject to a very large state mortgage tax. ( roughly 1% of the purchase price.) So the concession is knocked down to 2% right out of the gate. The taxes on long island in an average area are around $8000 per annum. 6 months reserves is $4000. Not to mention the fact that many major home insurance companies have pulled out of long island which has resulted in astronomical insurnce rates. The 3% sellers concession is almost obsolete in a market where the average priced home is $300k in the state of New York. And these amounts are not for the rich areas, more like the lower middle class. I have seen many solid income producing families fall by the waist side because of this. The sellers concession should be determined by the area the home is and the expected costs. To offer a blanket concession is an injustice on many levels. If this were to happen families would have to have on average $50000 to buy a home. Under the current economy this will only add more problems. In our communities, many of the households already have 2 working parents and they simply do not have the ability to save that much money. But they could afford the monthly payment of the mortgage. Many families are able to pay rent that far exceeds the costs of a mortgage payment. This will only drive prices down, the rich people will continue to gobble up distressed homes and the middle class will eventually become wiped out. For the first time in the history of our country, more real estate is owned by companies than individuals. What do you think will happen next?I strongly believe the responsibility falls on the originating company. There should be stricter enforcement and greater penalties. This will assure that all loans that are funded are reviewed with a fine tooth comb.

Aug 09, 2010 02:14 AM #42
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans



I waited til the end, but here is my comment to HUD. Comment Tracking Number: 80b2d256 


Aug 10, 2010 06:22 AM #43
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