LENN JUST HAD A EUREKA MOMENT ! ! CONVENTIONAL FINANCING MAY PERMIT MORE SELLER INCENTIVE THAN FHA!

FHA LIMITS SELLER CONTRIBUTION TO BUYER'S CLOSING COSTS TO 3% OF THE PURCHASE PRICE.  (Any day now.)

O.K.  We get it.  We don't like it but we get it.  We believe it's wrong headed for FHA to limit seller contribution to the buyer's closing costs.  These contributions are negotiated and there is no requirement other than self interest for a seller to agree to contribute a portion of their net proceeds to the buyer.

• Question:  Is closing help from a seller to a buyer required? 
• Answer:  NO.  No seller has to pay a dime of any buyer's closing costs.
• Question:  Will offering closing help to a buyer help sell a property?
• Answer:  YES.  The cost of acquisition of real property is often a significant source of revenue for local governments and may add 2-3% of the purchase price to the buyer's closing costs.
• Question:  Is seller paid closing permitted under other types of buyer financing?
• Answer:  Yes.  Sellers can pay significant closing costs under VA finacing, USDA financing, CDA financing, conventional financing.
• Question:  Does seller paid closing affect appraised value?
• Answer:  Not if the appraisers are ethical when performing their duties. 
•  
• Question:  Does seller paid closing costs drive up the list price of homes for sale?
• Answer:  NO!  Seller paid closing costs reduces the seller's NET PROCEEDS.

 

SELLER PAID CLOSING IS IN THE INTEREST OF THE SELLER.  In the best tradition of free enterprise, sellers who wish to compete with other owners with homes listed for sale, may offer to credit a buyer with cash to help a buyer pay their closing costs. 

CAN FHA FINANCING COMPETE WITH CONVENTIONAL, VA FINANCING?  Conventional and Veterans Administration financing buyers can also benefit from seller paid closing. 

• Under 95% conventional financing, sellers may contribute up to 3% of the purchase price to the buyer's closing costs.
• Under 90% conventional financing, sellers may contribute up to 6% of the purchase price to the buyer's closing costs.
• Under 100% Veterans Administration financing, sellers may pay ALL of the buyer's closing costs (and more). 

If a buyer with 10% down can receive a seller incentive of 6% of the purchase price for closing help, why should those sellers benefit from providing cash incentives to attract buyers when a seller is limited when the financing is FHA??  Shouldn't home owner/sellers be able to direct the money in their net proceeds in a manner that benefits them without government interference?

WE BELIEVE THAT THE GOVERNMENT'S PLAN TO LIMIT SELLER PAID CLOSING UNDER FHA FINANCINGcannot be justified.  If the rationale given, to replenish the insurance fund, then the solution would be to increase the FHA insurance premium to an amount that is actuarially sound. 

EUREKA!  Our home buyers can receive 6% closing help with 10% down.  Which benefits our buyers more, making a larger down payment or paying their cash for closing costs??? 

HINT TO AGENTS:  WORK THE NUMBERS.  You may find that, even with more restrictive LTV limits, conventional financing may benefit our buyers more than FHA.  When I work with a buyer to cost out financing alternatives, I run a 5 year amortization table for each type of financing considered.  The lower interest rates often offered with 10% down compared with FHA may make the conventional more attractive.  Or not.

GIFTS CAN HELP TOO.  Home buyers are often gifted with cash from close family members to help with the cost of acquisition.  PASS THE HAT.  Buyers are going to have to have at least 5% of their own money in the transaction but gift money can often make a difference between 5 and 10% down and getting that 6% closing help from a seller.  Always consult the loan officer before advising a buyer about specifics or make sure the loan officer described alternative financing.  However, a smart loan officer will be willing to run several scenarios based on your qualifications, assets and needs. 

Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988.  Serving home buyers in Maryland and Virginia.

 

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