Quick question: I have the funds to cover the 3.5% FHA required down payment.
I would like to put in an offer on a home asking is 172,600.
Offer 180,000.
Seller pays up to 7,400 Closing cost (bank fees, etc + prepaid)
Understand that home will need to appraiser for 180k.
Will the bank and/or title company understand the contract as such?
Meaning, do I need to inform the bank of the transaction/settlement or kickback toward closing of 7,400?
Also what happens to any overage of the 7,400? Seller keeps it?
Is this something that is done??
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y
Asking for closing costs is common. $7400 seem like a LOT for a $180K offer. 3%, or $5400, would be more typical.
You just put "seller to pay buyer's closing costs up to $7,400" in the offer. Your agent can help with the exact place this goes. This is very common and everyone involved should understand.
If it appraises for less than $180K, the loan and down payment will be based on the lower amount. You would need to come out of pocket for the excess, or else get the sellers to accept a lower value.
Once you have a contract with an agreed upon amount for closing costs, it becomes the upper limit. If the actual costs are less, you will only get a credit for that amount. At least, that's how it was done on a house I sold about two years ago. Yes, I absolutely kept it.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y
Asking for closing costs is common. $7400 seem like a LOT for a $180K offer. 3%, or $5400, would be more typical.
You just put "seller to pay buyer's closing costs up to $7,400" in the offer. Your agent can help with the exact place this goes. This is very common and everyone involved should understand.
If it appraises for less than $180K, the loan and down payment will be based on the lower amount. You would need to come out of pocket for the excess, or else get the sellers to accept a lower value.
Once you have a contract with an agreed upon amount for closing costs, it becomes the upper limit. If the actual costs are less, you will only get a credit for that amount. At least, that's how it was done on a house I sold about two years ago. Yes, I absolutely kept it.
Investor · Cincinnati, OH · Member since 2010 · 1k+ posts · 928 votes
13y
You can also take a modestly higher rate on your FHA mortgage and use the resulting "lender credit" to offset some of your closing costs, and then not need such a large seller concession. This will help sidestep the appraisal issue, which could definitely bite you when paying that much over list price.
Wholesaler · Newark, DE · Member since 2011 · 50 posts · 4 votes
13y
I did this on a duplex I bought. Went through negotiations came to an agreement on 381K. Once we had that accepted I came back with 390 and $8,800 back. He agreed. So once that was agreed I had a bump in closing costs so I asked him if he would do 400K with $19,100 Back . reason I kept moving up slightly in my net to him was to cover the additional tax he would pay.
Honestly it may sound dumb but it covered my entire out of pocket closing cost on the loan. (yes I know that is ridiculous closing but it made up for a bump to lower the rate, transfer of 2%, and every other thing imaginable.) I came out ahead offering more with more back. He came out ahead cause he had other units in the area and since there was no Realtor involved it made it a simple transfer at 400K. This bumped prices and he made about the same net so didn't care.
If the appraisal would cover it might as well get everything back you can. I admit it is not the most conventional way in the world but it made the deal work and since I will prob keep this place till I die it worked perfect for me.
EDIT: this was a Owner Occupied Conventional loan. Which I moved out of first chance I got and rent out both units now.