Can I use seller credit for closing costs?

12 Replies

Hey everyone,

My wife and I are currently looking to purchase our first rental property. This is located in upstate New York. The owner of the property is selling the triplex we are looking at and a duplex right next door. I’m not sure why but he wants to sell them both to the same person so he won’t accept an offer on just the triplex. We negotiated the triplex down to $78,000 and they fix the electric panel in the basement before they told us they wanted to sell them together. They have the duplex listed for $72,000. We are working with a bank for the triplex that is letting us do 20% down ($15,600) and they estimate closing costs to be $8,000 so we would be into that deal $23,600. If we did the same thing for the duplex we would be at $14,400 down and we assume $8,000 for closing. All together both deals would cost $46,000. We currently have $40,000 saved, we can cash advance up to $3,500 on our credit card as a last resort. We are trying to figure out a way to make up the difference. We are thinking that if they would appraise for it we could offer $82,000 and $76,000 and put in the contract for $4,000 seller credit on each. Would this work? Will a bank finance 2 loans at once? Me and my wife both have over 760 credit scores. The estimated cash flow between these two properties will be $1300 a month. Any guidance on this is greatly appreciated!

Dwight your lender will want to see 3-6 months of liquid reserves in order to approve the loan. If all of your savings are put towards the down payment you would not be able to satisfy this. Perhaps hold off on a purchase and give yourself some time to increase your cash. Alternatively you could ask your lender to do it as a commercial loan with both properties included, may cut down on the  buyer closing costs. That route would give more flexibility for possible seller carried 2nd lien financing as well.

Best of luck -Steve

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@Dwight Cook if the property is producing income it may actually be easier.

Perhaps reach out to friends/family and see who would want to tag team this with you. My concerns remain about lack of funds and needing a cash advance. In my opinion you'd be setting yourself up for better success sharing the deal with someone versus taking the entire project on yourself.

Steve

I don’t know your market but the closing costs seem really high at over 10% of the purchase price. Are you paying extra points for a lower rate? What did the other bank quote for closing costs?

@Dwight Cook I agree with Colin the cost seem super high, I can only imagine it being that high if the loan is non conforming which sounds like they may be doing that, one strategy is to offer a higher purchase price in exchange for higher seller credits, this is no cost to you or the seller except your loan will be larger, also look at taking a rate where you receive a credit, you can make this work if you have a low enough dti with the two loans and you can pay the full down payment for both the rest is just a matter of negotiation and creativity

@Jacob Trogan i also second some of what has been said about you not having enough reserves even if the bank doesn’t mind your lack, I would keep much more in your pocket, don’t chase cashflow just to wind up where you have no cash and two properties that need 1000s in repairs after a tenant trashes it, no fear but prepare for the worst

@Colin Gearity I’m not sure why the closing cost are so high. I think it’s because it’s New York. The first bank quoted $11,000 then we found this one that quoted $7,500 not including our attorney expenses so I guesstimated $500 for that. What can I do to lower the closing costs?

@Jacob Trogan are you saying that the bank may offer the credit for a higher rate? That would work! My cure t debt to income ratio is really good. I make about $50,000 a year on my W-2 job and I don’t have any bills because I live in military housing.

Originally posted by @Dwight Cook :

@Jacob Trogan are you saying that the bank may offer the credit for a higher rate? That would work! My cure t debt to income ratio is really good. I make about $50,000 a year on my W-2 job and I don’t have any bills because I live in military housing.

Yup ask them for an above par rate

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