I was recently involved in a file that had been previously been turned down by 3 other brokers, all of whom had promised the borrower and realtor a timely close. I was contacted by the buyers realtor who in turn put me in touch with the buyer. After speaking with the borrower and analyzing the contract it was very easy to see where these "inexperienced brokers" went wrong. Simplyput, the closing cost credits amounted to over $28,000 & almost 10% of the purchase price. Now there were several other factors that were an issue but the biggest mistake made was the borrower dealing with unprofessional bokers and the contract itself. After careful consultation with both realtor's and the buyer we were able to restructure the contract and close the file on time". What does this mean?
Seller paid closing costs are used in numerous transactions and are not uncommon to most contracts. Closing cost credits or seller paid closing costs are used to help the borrower get into a home with as little out-of-pocket money as possible. For instance, let's say that you have found a home and both you and the seller have agreed on a price of $100,000 with no seller paid closing costs. However, after careful thought you decide that the only money you want to contribute is $1,000. In order to accommodate everyone, you would want to offer $102,000 and have the seller pay $2,000 toward your closing costs. In essence you are financing the closing costs into the loan while at the same time not cutting into the sellers bottom line.
Closing cost credits have a cap, typically for Fannie Mae or Freddie Mac loan, (i.e. Conforming products) this is 3%. Meaning the max closing cost credit for these loans cannot exceed 3% of the sales price. So in our example above the max "seller paid closing costs" would be $3,000.
For "Non-conforming" loans or "sub-prime" loans the max credit is 6% of the sales price. Again taking our example above the max "seller paid closing costs" cannot exceed $6,000. Now with that being said under normal circumstances you should never need $6,000 to close a loan. So just because you have 6% at your disposal does not mean you must use it. Keep in mind that a lot of this depends on the loan, product, and the broker involved.
Your comments are welcomed!
Brought to you by Professional Mortgage Group Columbia, Missouri
Seller paid closing costs are used in numerous transactions and are not uncommon to most contracts. Closing cost credits or seller paid closing costs are used to help the borrower get into a home with as little out-of-pocket money as possible. For instance, let's say that you have found a home and both you and the seller have agreed on a price of $100,000 with no seller paid closing costs. However, after careful thought you decide that the only money you want to contribute is $1,000. In order to accommodate everyone, you would want to offer $102,000 and have the seller pay $2,000 toward your closing costs. In essence you are financing the closing costs into the loan while at the same time not cutting into the sellers bottom line.
Closing cost credits have a cap, typically for Fannie Mae or Freddie Mac loan, (i.e. Conforming products) this is 3%. Meaning the max closing cost credit for these loans cannot exceed 3% of the sales price. So in our example above the max "seller paid closing costs" would be $3,000.
For "Non-conforming" loans or "sub-prime" loans the max credit is 6% of the sales price. Again taking our example above the max "seller paid closing costs" cannot exceed $6,000. Now with that being said under normal circumstances you should never need $6,000 to close a loan. So just because you have 6% at your disposal does not mean you must use it. Keep in mind that a lot of this depends on the loan, product, and the broker involved.
Your comments are welcomed!
Brought to you by Professional Mortgage Group Columbia, Missouri
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