investment financing

15 Replies

Originally posted by @Shelly Scruggs :

Is it true that down payments, closing costs, or prepaids can never be rolled into purchase price of an investment property?

That is true you cannot roll them in on a purchase however there are ways around it like increasing the price and indirectly ask for the difference in price increase as a seller closing credit which in effect is "rolling," into the purchase for your closing costs and prepaids.

Down payment - can never be rolled into the close.

I am sure there are ways around it but that would require me to put on the investor cap and take off the loan officer cap.

Originally posted by @Shelly Scruggs :

@Albert Bui If the property is bank owned, are banks willing to do this?

 No!

And asking a seller to indirectly kick back money is illegal. As long as all funding transactions are contained in the settlement statement you can list whatever you want to, but lenders will only allow about 3% in concessions, depends on the program/lender.

Amounts paid out of closing, either way, need to be disclosed. 

You can borrow from other assets, qualify with that loan for a down payment and costs but you need to disclose that at the time of any loan application. Good luck :)

Thank you so much @Bill Gulley . As a newbie, don't want to do anything illegal. Down payment isn't really my issue. My issue is understanding all that is involved in actual closing costs and are these fees a reason to shop around for lower closing costs or are closing costs a certain percentage across the board.  Is there a range that is acceptable when shopping for a lender?

Originally posted by @Bill Gulley :
Originally posted by @Shelly Scruggs:

@Albert Bui If the property is bank owned, are banks willing to do this?

 No!

And asking a seller to indirectly kick back money is illegal. As long as all funding transactions are contained in the settlement statement you can list whatever you want to, but lenders will only allow about 3% in concessions, depends on the program/lender.

Amounts paid out of closing, either way, need to be disclosed. 

You can borrow from other assets, qualify with that loan for a down payment and costs but you need to disclose that at the time of any loan application. Good luck :)

Perhaps you misunderstood what I had meant and yes it's highly "legal," and done very often to ask for closing cost credit towards closing. 

I did not mean to do anything outside of the settlement statement or to insinuate a "kickback."

The question was can you get your closing or prepaids financed on a purchase. The answer is yes you can if the appraisal allows for it (value has to come in) and if the seller agrees to provide the closing cost credit towards your closing costs then yes you in effect will be financing your cc and pp's if your offer price is higher in the exact proportion to the asking price.  (Offer price = asking price + closing & prepaids)

Banks typically offer REO's at 85-90% of FMV and closing and prepaids are usually 2-5% of sales price depending on the sales price so appraisals shouldn't be a problem for reo's.

closing cost concessions is not 3% it varies based on the type of financing used.

If it's an investment transaction it's 2% and up to 6-9% max depending how much down payment is put down with primary residence scenarios.

2-3% of the sales price is usually more than enough to cover closing costs and prepaids anyway unless if you're in a really low sales price area where price is sub 150k.

Originally posted by @Albert Bui :
Originally posted by @Bill Gulley:
Originally posted by @Shelly Scruggs:

@Albert Bui If the property is bank owned, are banks willing to do this?

 No!

And asking a seller to indirectly kick back money is illegal. As long as all funding transactions are contained in the settlement statement you can list whatever you want to, but lenders will only allow about 3% in concessions, depends on the program/lender.

Amounts paid out of closing, either way, need to be disclosed. 

You can borrow from other assets, qualify with that loan for a down payment and costs but you need to disclose that at the time of any loan application. Good luck :)

Perhaps you misunderstood what I had meant and yes it's highly "legal," and done very often to ask for closing cost credit towards closing. 

I did not mean to do anything outside of the settlement statement or to insinuate a "kickback."

The question was can you get your closing or prepaids financed on a purchase. The answer is yes you can if the appraisal allows for it (value has to come in) and if the seller agrees to provide the closing cost credit towards your closing costs then yes you in effect will be financing your cc and pp's if your offer price is higher in the exact proportion to the asking price.  (Offer price = asking price + closing & prepaids)

Banks typically offer REO's at 85-90% of FMV and closing and prepaids are usually 2-5% of sales price depending on the sales price so appraisals shouldn't be a problem for reo's.

Yep,  just clarified so there wasn't a misunderstanding, you're right with your lender hat on! LOL :)

The answers above are correct. But, the amount of closing costs depend on the lender. I just closed 2 properties with a credit union who does not escrow taxes nor insurance. Therefore, I eliminated those prepaids. Of course,seller financing is always preferred as you can eliminate all closing costs and prepaids. 

Originally posted by @Rick Stein :

The answers above are correct. But, the amount of closing costs depend on the lender. I just closed 2 properties with a credit union who does not escrow taxes nor insurance. Therefore, I eliminated those prepaids. Of course,seller financing is always preferred as you can eliminate all closing costs and prepaids. 

Most states allow the borrower to make the choice to impound the tax and insurance or to waive escrows/impounds but usually you have to have 20% or more down payment.

In CA the min is 10% down for the borrower to decide to impound T&I's or not (it cost more to waive impounds, about .40 points cost).

Most other states require 20% down or more to waive them.

Yes if you waive them you bring in less "cash," to close however its important to distinguish that these prepaids are just funds being stored on your behalf and are not "closing costs," in technicality but are required to be brought into closing to consummate the loan or transaction.

Also the reason seller financing is less closing costs is because there is no lender, processing, underwriting, doc fee, credit report, etc.

However, with a seller financed transaction you still have lender title insurance (I hope you have this), and the attorney/escrow fee, along with recording, notary probably,  exise and transfer tax (depending on which county or state you're in), prepaid interest on the seller carried note unless you negotiated the start date of your note at a future time or got some forbearance/deferment period.

when I stated that you eliminate closing costs with seller financing, I should have clarified that you eliminate financing cost s such as an appraisal, commitment fee and other fees associated with the lender.