My buyer doesn't have money to pay closing costs. We've agreed on a price of 125,000. The buyer needs 2500 in closing costs covered as well as a FHA fee of 500 and 3% down.
My question is: how do I build this into the price?? Do I take 3% of 125,000 of of the 125,000 + costs. And how do I build it in without the seller complaining about paying more commission and tax on the higher price? Thanks.
JJ
If possible and buyer can qualify, I would add the costs to the price and ask seller to pay for the closing costs, yes the seller would pay slightly more for commission but probably can write it off on income tax, it could be a wash, the seller should talk to a CPA or tax attorney if he is hesitant
I am guessing that you might be new in real estate. Congratulations! I'd like to recommend that you rely heavily upon your broker to answer these types of questions until you get your feet wet. AR is an excellent source of information but you don't know if the answers you receive are correct or not and really shouldn't replace the advice of a broker. Just a thought.
What you are describing is the Ameradream or Nehemiah programs
read all about it at getdownpayment.com
they have a neat calculator there to show your seller that accepting a full price offer and contributing the downpayment and the closing costs is actually better for them than negotiating a price less than the asking price with no concessions
Be carefull jacking up the purchase price to cover your costs, the lender will not want to lend more than the listing price
Amanda has a great suggestion. And remember if you raise a price for buyer costs you have to be sure about appraisal and you don't have to raise the commission, just write in that the commission is based on XXX. Good Luck
One of my lenders recently taught a class on this very question, and they provided a simple set of calculations to use when dealing with FHA loan. Sit down with one of the lenders you work with and they can walk you through the process.
And to Amanda's point, always pass it by your broker.
JJ,
I have two questions for you. 1) Did you not know you client had no money before you made an offer? This is important to know before you make any offer. 2) Why are you doing the lender's job? You need to develop a relationship or two with a Mortgage Consultant who know how to get loans closed and only work with buyers who use the people you trust to get the job done.
The problem with using Ameradream or Nehemiah programs is that you have already agreed upon a price and the house will have to appraise. FHA frowns on amending the price upward once you have a contract and appraisers are becoming more .
Otherwise, check to see if there is a state or local grant program for assistance or see if this property and you buyer qualify for a USDA Rural Development loan.
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