First time home buyers are usually short cash to get into a home, at least in the markets I work of #Ukiah, California, Willits, California and Lakeport, California. These #Northern California areas are about 110 miles north of #San Francisco and have a serious shortage of inventory of homes. Thus, the values continue to rise (supply and demand) which makes it harder and hard for buyers to keep up with the cost of rising house prices.
When i sit down with a prospect, them being able to come up with a 3.5% down payment (FHA) is usually about all they can come up with. Yes, we can certainly ask the seller for a closing cost credit, and on many transactions we do, but that doesn't make their purchase offer very strong when competing against multiple offers.
Some of the answer can be lender paid closing cost. We can achieve this by increasing the rate of interest to a level that creates a loan premium that is paid back to us from the investor. Example: yesterday on an FHA loan at a rate of 3.75%, the pricing was 100.75 which means that there were 0.75bps available to credit to the buyer. On a $300,000 loan amount, you would multiply the loan amount by 0.75, which creates a credit of $2250 that can be applied toward the buyers cost.
There are also reasons when a buyer has the cash to close, where they may not want to spend that cash, and having the lender pay some of their cost, allows them to keep the cash to use for remodel cost, repairs on the new property or just upgrades.
So, the next time you are working with a buyer, make sure you actually have your lender "advise them" on what is the best thing for your clients needs!