Seller Paid Closing Costs Tips
Did you ever wonder while writing an offer how much is too much for a seller credit? Hopefully this will help clarify.
- First and foremost the seller credit can only be used to fund actual closing costs and prepaid expenses incurred (and cannot be applied to down payment) so if the concession is too high, the buyer will not be able to use it all, so it’s important to have a realistic idea of what those fees will be so nothing or almost nothing gets left on the table.
- Closing costs means any typical loan fees such as origination, appraisal, credit report, flood certificates , tax service, closing/settlement, mortgage recording, and so on.
- Prepaid expenses refers to the first year of insurance premium on the property, and initial escrow account deposits. To maximize the seller credit it is a good idea for the buyer to get an invoice for the first year of insurance to pay at closing vs. paying it up front. Once a fee is paid, it cannot be reimbursed at closing.
- If you find yourself in a situation that the seller credit exceeds the actual costs and money is being left on the table, it is possible to use remaining money to pay ‘points’ to get a lower interest rate. Keep in mind that if an interest rate moves more than .125% the loan does need to be re-disclosed to the borrower and at least 3 days have to go by before the loan can ‘close’ after it is re-disclosed. If you are close on closing date, this could cause a delay.
There limits to the amount of seller paid costs based on the buyer’s down payment
|Occupancy Type||Loan To Value Ratio||Maximum Contribution (% of Sale Price)|
|Primary Residence or Second Home||Greater than 90%||3%|
|75.01% to 90%||6%|
|75% or less||9%|
|Investment Property||All LTV Ratios||2%|
VA and FHA Loan Tips
- Every purchase funded through a VA or FHA loan will require that buyers, sellers and realtors. If your lender does not provide this to you early in the loan process, I would ask them for it to keep things moving forward in case they’ve forgotten.
- VA and FHA appraisal requirements tend to be a bit more stringent. Safety issues such as stairs without handrails, chipped or peeling paint, non-GFI outlets by sinks, automatic garage doors that don’t reverse when they meet pressure can cause repair requirements prior to closing and final inspections to sign off by the appraisers. Know your properties and watch for potential home issues that could cause delays.