OT: Seller Paid Closing Costs when buying a house

[GoofItUp]

I know there are people in the know on this board, and I'm not sure I can wait out the weekend to find out the answer to my question!

We are selling our home. We finally reached an agreement with the buyer a couple of days ago and we are suppose to close next week. We agreed to pay up to $6000 of the buyers closing costs. I found out today that the buyer is using a mortgage company that is approved by Fannie Mae. I know/think that Fannie Mae only allows 3% of the closing costs to be paid by the seller. (Their downpayment is less than 10%.) You know where this is going...3% is less than $6k. So, if a mortgage company is "Fannie Mae approved" then do they have to follow this 3% rule?

 

[GOOFY4DONALD]

I am not sure about the Fannie Mae approved but we are in the process of buying a home . I do know that closing costs are approx 4.5% of the cost of the home and legally the seller can only pay a maximum of 3% of the closing leaving the buyer to pay for the remaining 1.5% of closing. This 3% doesn't have anything to do with the downpayment. If I understand correctly you are worried you will be contributing to their down payment. Don't worry you won't. If the 3% of the closing costs on your house are 6K or more then you have already agreed to it. If the 3% of the closing costs are less that 6K then you won't have to comeup with the entire amount.

 

[Piecey]

I am not sure about the Fannie Mae approved but we are in the process of buying a home . I do know that closing costs are approx 4.5% of the cost of the home and legally the seller can only pay a maximum of 3% of the closing leaving the buyer to pay for the remaining 1.5% of closing. This 3% doesn't have anything to do with the downpayment. If I understand correctly you are worried you will be contributing to their down payment. Don't worry you won't. If the 3% of the closing costs on your house are 6K or more then you have already agreed to it. If the 3% of the closing costs are less that 6K then you won't have to comeup with the entire amount.

Are you sure that is the case with every mortgage company?

We didn't pay a cent. We went to closing, signed the paperwork, got our escrow money back and left with keys. Our mortgage is for the amount we agreed to buy the house for, so nothing was rolled in after our offer. (we offered list)
Plus, we got a principal reduction from the mortgage company last year where they said they overcharged us (the sellers, I assume) a HUD fee that they said they weren't allowed to charge on a VA loan or something.

 

[GoofItUp]

That's where my questions were....if it's for all loan types or only specific ones. I can find where Fannie Mae loans only allow 3%. I have read that if you are putting down a 10% or more deposit they will allow up to 6%. But I didn't know if those rules applied to conventional loans as well. I'm hoping the PP is right and the 3% is a sweeping rule.

I have read that VA loans have some even more specific rules where you pay nothing down and no closing costs or something like that (a VA-No-No is what they call the loan which I thought was funny ... sounds more like something they don't want you to do!) which I am assuming is what you may have had.

The 3% is definitely less than $6k. I'm really hoping that rule will apply...that would be a serious Disney money find!!

 

[lovemylife]

My DH and I just closed 2 weeks ago on our house. We had an FHA loan. We were required to put 3.5% downpayment and the sellers agreed to pay up to 6%of closing costs. FHA does allow that much to be paid by sellers. The sellers ended up paying relator fees, all of our pre-paids, taxes, home owners insurance, surveys, etc. There was $50 that went over that 6% and that we had to pay. Hopefully that helps.

 

[GingerJay]

Are you sure that is the case with every mortgage company?

We didn't pay a cent. We went to closing, signed the paperwork, got our escrow money back and left with keys. Our mortgage is for the amount we agreed to buy the house for, so nothing was rolled in after our offer. (we offered list)
Plus, we got a principal reduction from the mortgage company last year where they said they overcharged us (the sellers, I assume) a HUD fee that they said they weren't allowed to charge on a VA loan or something.

Since you had a VA loan you had 100% financing- actually probably more than 100%- your loan amount would have been increased to cover your VA funding fee. You probably borrowed more than you paid for the house, for example.

On FHA or other government loans, you have to pay a minimum of 3.5 or 3% down and this cannot be paid by the seller. OP- what will end up happening is that they will borrow that much less on their loan from the purchase price so they have to pay that cash down.

It may be likely that you don't reach the $6000 in CC- good luck on your sale

 

[hiddenj]

We agreed to pay a certain amount in closing costs, but the bank would only allow certain costs to be seller paid, so the buyer was able to add in a few things like a home warranty. I could pay additional months HOA dues, but ultimately, they could not use up all I had agreed to pay and we came out ahead.

 

[Sheree]

It's not whether the lender is FNMA approved, it's what type of loan the buyer is getting. If it's a FNMA conventional loan with less than 5% down the seller can pay up to 3% of the sales price towards buyer's closing costs, not to exceed actual. FHA, VA, and USDA all have other guidelines.
So even if you negotiated to pay more, at closeing, the maximum that can show on the HUD is a number not to exceed 3%. You are not allowed to give the buyers additional any other way.
You make out!!
Hope this helps

Their loan officer and agent should have known the guidelines

 

[Piecey]

Since you had a VA loan you had 100% financing- actually probably more than 100%- your loan amount would have been increased to cover your VA funding fee. You probably borrowed more than you paid for the house, for example.

On FHA or other government loans, you have to pay a minimum of 3.5 or 3% down and this cannot be paid by the seller. OP- what will end up happening is that they will borrow that much less on their loan from the purchase price so they have to pay that cash down.

It may be likely that you don't reach the $6000 in CC- good luck on your sale

DH is a disabled Veteran, so the VA waived the funding fee. Like I said, our mortgage is, to the penny, what we agreed to pay- nothing was rolled in.

OP, I've heard that about VA loans too- no,no,no. they definitely have their own rules.

 

[FayeW]

I can't add anything to this thread as I am in Canada and our regulations are different. It is interesting to me to see just how different purchasing a home is in Canada and the US.

Here, the minimum down payment is 5%. Sellers don't pay any of the closing or legal costs for the purchasers (those fees combined would be between 1.5 - 2% of the purchase price). Closing and legal fees MUST be paid by the purchasers, and if there were to be any money given back to the purchasers from the vendors, it would be deducted from the purchase price, and the mortgage written for the the new, lower amount.

For example, let's say a house is sold for $200K, and it needs a new roof. The sellers don't want to get it done, but want to give $5K cash back in closing to the purchasers so they can do the roof. Instead of giving a mortgage for 5% of the purchase price ($190K), the lender will only do the mortgage for 5% of $195K ($185250).

It's too easy for people to be tempted to walk away from their mortgage is they don't have any "skin in the game" so to speak.

 

[jsmith]

Not all VA financing is for 100 percent or more of the value either-we had a large amount of equity from a previously home sale-but VA rates were so low at the end of last year that it still was a better deal to use VA funding-so we we have a VA mortage but we put 30 percent down.

 

[GoofItUp]

It's not whether the lender is FNMA approved, it's what type of loan the buyer is getting. If it's a FNMA conventional loan with less than 5% down the seller can pay up to 3% of the sales price towards buyer's closing costs, not to exceed actual. FHA, VA, and USDA all have other guidelines.
So even if you negotiated to pay more, at closeing, the maximum that can show on the HUD is a number not to exceed 3%. You are not allowed to give the buyers additional any other way.
You make out!!
Hope this helps

Their loan officer and agent should have known the guidelines

Yes, someone on their side should have caught it (our agent told us about the 3% when we signed the contract, but I didn't totally understand if it was an absolute or if it was only certain types of loans) but their agent and these buyers have been.....well....we'll just say it hasn't been the easiest transaction.