Sellers often think that the profit on the sale of their house is the difference between the Selling Price and what they still owe on the house. It would be nice if that were the case, but unfortunately Seller's will incur Closing Costs on the sale of their property. These Seller Costs Are Substantial And Need To Be Addressed Early In The Selling Process.
Often when I meet with Borrowers that are in the process of selling their existing house they are surprised to findout that the full difference between the Selling Price, and what they still owe on the house will not be available for them to put down towards the purchase of a new house. The fact that it is me that is telling them this for the first time always surprises me, because I would expect this to be discussed with their Listing Realtor very early in the process of selling their home and purchasing a new one. In fact if the Seller's are dealing with one of the Realtors that I partner with, they already have this information, and they are not surprised when I also have this conversation with them. But if it is a part-time Real Estate Agent, or someone that is not as knowledgeable as the Realtors that I partner with, my conversation with them is always the first time that they are hearing about it.
The calculation for what the Underwriter will consider as the Net Proceeds of the sale of the exsistiong property is very simple. It is not the indebt breakdown that a Professional Realtor like those that I partner with and highly recommend, will do for them when discussing the sale of their exsiting property. The calculation that the Underwriter will use is as follows:
- Deduct 8% from the Selling Price. Included in the 8% are Realtor Commission, Attorney Fees, Conveyance Fees, Meter Reading, and any other customary Seller Closing Cost.
- Subtract the balance on the existing Mortgage from the remaining amount.
- Subtract Second Mortgages, Home Equities, Lines of Credit, and Liens.
- The remainder is the amount that will be available towards the purchase of the new home.
NOTE: Automated Underwriting is even more conservative in its calculation. Automated Underwriting will deduct 10% instead of 8%.
The Listing Realtor breakdown of what the expected Seller Closing Costs are expected to be, will be more accurate that the simple calculation that is used by the Underwriter. That is because the Underwriter is not concerned with a detailed breakdown of costs at this point. All the Underwriter is concerned with is with a CONSERVATIVE estimate of the Seller Closing Costs to make sure there will be sufficient funds to close on the new property.
The expectation of available funds needs to happen in my opinion, in the very first conversation that the Realtor and Loan Officer has with the Seller/Borrower. As you can see from the above calculation Seller Costs Are Substantial & Need To Be Addressed Early In The Selling Process to eliminate any surprises later on.
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Info about the author:
George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com
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