Buying a home and seller is paying closing and other, be careful

Contributions exceeding six percent of the sales price or exceeding the actual cost of prepaid expenses, discounts points, and other financing concessions as well as other inducements to purchase, result in a dollar-for-dollar reduction to the sales price before applying the appropriate LTV ratio. LTV Homes loan to its value

These inducements include decorating allowances, repair allowances, moving costs, and other costs as determined by the appropriate HOC. (HOC =Home owner concessions) We also require dollar-for-dollar reductions to the sales price for excess rent credit, as well as for gift funds not meeting the requirements.

Personal property items such as cars, boats, riding lawn mowers, furniture, televisions, etc., given by the seller to consummate the sale result in a reduction to the mortgage. The value of the item(s) must be deducted from the sales price and the appraised value of the property (if not already done so by the appraiser) before applying the LTV ratio.

However, certain items, depending upon local custom or law, may be considered as part of the real estate transaction with no adjustment to the sales price or appraised value necessary. These items include ranges, refrigerators, dishwashers, washers, dryers, carpeting, window treatments, and other items as determined by the jurisdictional HOC. That office determines if these items affect value and are considered customary.

Replacement of existing equipment or other realty items by the seller before closing, such as carpeting or air conditioners, does not require a value adjustment provided no cash allowance is given to the borrower.



In addition, if the seller or builder of the property agrees to pay any portion of the borrower's sales commission on the sale of the borrower's present residence, the amount paid by the seller or builder is an inducement to purchase and must be subtracted dollar for dollar from the sales price before the LTV ratio is applied.

Similarly, a borrower not paying real estate commission on the sale of a present home constitutes a sales concession, if the real estate broker or agent is involved in both transactions and the seller of the property purchased by the borrower pays a real estate commission exceeding that typical for the area. In these situations, the amount paid by the seller above the normal real estate commission is considered an inducement to purchase and must be subtracted from the sales price of the property being purchased before applying the LTV ratio.

Seller consessions

Mortgage Loans and Seller Paid Contributions


by Brian P. Forrester on March 15, 2010 My dear friend outside of Tampa



Here we go again! In the mortgage industry, mortgage brokers have seen as many interpretations of rules as there are actual rules that govern the home mortgage business.



Seller paid contributions (money that can be allocated toward buyers’ expenses of everything from closing costs to pre-paids to escrows and are paid out of the sellers’ funds), may or may not soon be downgraded from the current 6% of the home purchase price to 3% of the home purchase price. Currently, we have no concrete information on an effective date for that change.



However, (mortgage brokers have had to use that word a lot lately!), since January 1st we’ve already seen hiccups in lender interpretations of how to treat owners’ title insurance and tax stamps on the deed in the context of seller paid contributions.



In many regions of the country, these title insurance and tax stamps expenditures were traditionally funded from the seller’s side of the HUD. But now, if a deal includes a 6% seller contribution, then the owner charges must be represented on the HUD. But some lenders are interpreting the tax stamps on the deed as a charge to the home buyer.



The impact on the home buyer is the discovery that he or she needs to come up with this extra cash at the point in the transaction when buyers are not at their most liquid. This surprise can really cause a hardship and is the kind of stress that can be avoided.



At the end of the day, best practices dictate that in a seller-paid scenario, the home buyer should confirm with their lender whether it is the seller or the buyer that pays for the title and the tax stamps. Avoiding a pre-closing surprise of a buyer paid contribution is priceless.