Doesn't the seller pay for ALL of our Closing Costs???

We all have to remind buyers that they are responsible to pay the required down payment percentage (3.5% for FHA or 3-10% etc for Conventional) AND their closing costs/pre-paids too. Even if you stipulate that the sellers contribute towards “closing costs and pre-paids” in the purchase agreement it may not cover ALL of those fees.

If you want a smooth purchase transaction make sure that you ask your favorite mortgage guy if there is a NEED to try to get all/most of the closing costs/pre-paids included with the offer. It could be the one little detail that causes the deal to fall apart if the buyer is short of CASH.

Here’s a quick general reminder:

Conventional:

• Over 90% LTV: maximum “seller paids” = 3%
• >75% to 90% = 6% max
• less than 75% = 9% max.  (this is viable for small purchases OR for a permanent rate buydown if value is there)
• For INVESTMENT PROPERTIES at any LTV = 2%

FHA:

• FHA guidelines state 6% is allowable

VA:

• VA guidelines allow qualifying Veterans to have the sellers contribute up to 4% of the sales price. For a couple different reasons… I highly recommend the buyers agents I work with to include at least 3% to the 4% maximum to give our Veterans the best possible loan program with the lowest “out of pocket” expense.  They've earned it.

USDA Rural Development:

• This is a tricky one because there really is NOT a cap on this but some investors may limit the contributions to the 6% limit.

IMPORTANT NOTE:

Even though these program types have their maximum allowable seller paid closing cost guidelines, don’t be surprised when you’re negotiating if you learn that the seller won’t allow more than 3% in seller paid closing costs. This is particularly common on bank owned properties where the asset is owned by HUD, Fannie Mae or Freddie Mae.

To conclude… the relationship between the borrower, the agent and the “mortgage guy” needs to be open and active before an offer is submitted.  A wise man once told me that “Relationships (both personal and business) FAIL when there is a Break-Down in Communication”.

Steve Brand – NMLS # ID 261849 – 612.386.5306