ALLOWABLE AND NON ALLOWABLE BUYER COSTS

By
Mortgage and Lending with imortgage

Mortgage financing comes with literally thousands of variables and just as many rules to go along with it. Knowing what is allowed and what isn't can make the difference in how smooth your home loan transaction will be.

Here are some examples to be aware of:

The following items cannot be added to the transaction without a dollar for dollar reduction in sales price since they are considered an "Inducement to Purchase". Having these types of seller concessions in your purchase contract will change the down payment requirement:

  • Vacations/Air Fare/Hotel Accommodations
  • Gift Cards - even those for repairs or improvements for the home being purchased
  • Vehicles/Golf Carts
  • Golf or Health Club Memberships
  • Audio/Visual and other elctronics like computers, PDA's and iPods
  • Furniture or personal property, excluding typical appliances like washer, dryer, stove, etc

CONTRIBUTIONS BY SELLER

FHA
The seller can contribute up to 6% of the sales price toward the buyer's closing costs, prepaid expenses, points, etc

VA
The seller can contribute up to 4% of the sales price

CONVENTIONAL
The seller can contribute up to:

  • 3% of sales price with down payments under 10%
  • 6% of sales price with down payments from 10% up to 25%
  • 9% of sales price with down payments of 25% or more
  • 2% of sales maximum for Investment Property purchases regardless of down payment

USDA
The seller can contribute up to 6% of the sales price

HOMEPATH
The seller can contribute up to 6% of the sales price for Primary Residence purchases, 2% for Investment purchases

 

EXPENSES NOT ALLOWED

Below, you will find some of the expenses that the buyer CANNOT pay:

FHA
Tax Service Fee (usually about $80)

VA
Escrow, Settlement or Loan Closing Fees
Attorney Services other than for title work
Termite Inspection or Treatment (except on refinances)
Notary Fees
Real Estate Brokerage Fees
Fed Ex Fees
Lender-Related Fees: Processing, Loan Doc Preparation, Underwriting, Tax Service, Application, Commitment, Trustees, TIL Preparation, Lender Appraisal, Postage

The total of the VA expenses not allowed to be paid by the buyer will typically run between $1,000 and $1,500. This needs to be listed on your contract when submitting an offer to the seller if using VA financing.

 

Always contact a licensed mortgage professional with any questions that you may have specific to your situation. It is imperative that you receive an in-depth evaluation to assure you are not only being placed in the best mortgage product for you, but that the many variables of financing rules and restrictions are addressed up front to assure you have a full understanding of the loan and your costs associated with it.

Posted by

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Brian West
Your AZ Mortgage Pro!

350+ Transactions - 0 Loan Denials  *  Average Closing - 22 days  *  Closings Attended

FHA, VA, USDA, Jumbo, Canadian, Conventional, Foreign National, FHA 203K

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Home Buying
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Arizona Maricopa County
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allowable and non allowable buyer costs
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Rainmaker
808,221
Robert Rauf
HomeBridge Financial Services (NJ) - Toms River, NJ

People have a hard time understaning this... You did forget 1: CASH!  so often I see cash that has to be left on the table because they over did the seller concession... Agents need to have discussions with their TRUSTED LENDING PARTNER to be sure that the estimate is accurate, and not over done... I think it is better for a buyer to come to closing with a few dollars than to leave money on the table.

Jul 05, 2011 08:07 AM #1
Rainer
62,928
Brian West
imortgage - Gilbert, AZ
Arizona Lender

Hi Robert

You make an excellent point. I didn't mention cash and over contributions because this blog was more about what is simply allowed and not allowed, as opposed to the many other factors that go in to contributions. Perhaps I'll do a blog specific to those attributes at another time

Having said that, I just closed a deal a short while ago in which hundreds were left on the table which could have been used better in a reduction of sales price and agree it's better for the buyer to come in with a bit more over down payment than leave money sitting there

Thanks for your input!

Jul 05, 2011 08:16 AM #2
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Rainer
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Brian West

Arizona Lender
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