GOOD NEWS for Home Sellers with FHA Financing!
Attn: Listing Agents.
How often have you gotten to the settlement table and saw the HUD-1 and realized that your seller was going to be short of money. This is a mistake made by many new agents or agents who rarely sell a home to a buyer with FHA financing.
For many, many years, when representing home buyers, we schedule closing toward the end of the month to reduce the pre-paid interest. This practice also benefited the home seller, whether they realized it or not. NO, we didn't settle on the last day of the month because even with overnight mail of the pay-off the lender wouldn't receive the pay-off until the 1st or 2nd of the month, meaning the seller would be charged for the entire month.
LINE 603, Seller's side is a negative amount. The first thing sellers with little equity will notice is that there are insufficient net proceeds to pay off the mortgage loan. The number on line 603 is the amount the seller needs to close. It's rough when a home seller has to bring money to the table.
Of course, what's even rougher is when the agent is not sufficiently trained in FHA financing to realize that FHA and FHA only collects interest for what's remaining of that month.
NO PRO-RATING OF THE PAY-OFF with an FHA loan. Settle on the 3rd of the month and the seller is charged for the entire month of interest, even when they no longer own the property. Settle on the 1st day of the month and a full month interest is charged to the seller. Settle on the 15th of the month and 15 or 16 days of interest is charged to the seller.
THIS PRACTICE OF GOUGING THE SELLER IS ONLY WHEN THE HOME THEY ARE SELLING IS FINANCED WITH AN FHA LOAN.
VA Financing pro-rates the pay-off.
Conventional Financing, Fannie and Freddie, pro-rate the pay-off.
ENTER the CFPB. They have mandated, pursuant to Dodd-Frank, that FHA change their practice and cease charging for the entire month irrespective of the date of settlement. The change ordered won't take effect until January 21, 2015. A lot of loans will close and a lot of sellers will be gouged by FHA before that date.
LISTING AGENTS ALERT!! Until January 1, 2015, make sure your seller understands that, unless the sale of his home is at the end of a month, he will pay a lot of extra interest to the lender or servicer. If for some reason the buyer wants to settle early in the month, then that may affect the final price of the home. After all, a month of mortgage interest is a lot of money.
That home seller will think you're a genius. You are!
Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988, serving home buyers in Loudoun County, VA.
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