Fannie Mae 2% Sellers Assist -- Security Deposit Included?

Question

Hello Everyone,

For those experts in Fannie Mae guidelines, the 2% sellers assist exists for investment conventional loans.  Say I have a fully rented out duplex investment property with the following information:

Agreement of Sale:  Purchase price $73,400 assuming 2% Sellers assist
Therefore offer amount is actually ~$72,000 (I'm rounding)
For arguments sake let's assuming that the two tenants in the house have a grand total of $1000 in security deposits.

The seller must give the security deposits to the landlord during closing, but would that count as part of the sellers assist or does this count as a separate source of funds.  I heard that Fannie Mae frowns on essentially putting down less than 20% on the property.  In other words would the offer amount effectively become $73,000 because the security deposit counts as sellers assist or would I still receive the security deposit and the $1,400 sellers assist.

Mark H. · Answer

The security deposit is an obligation you are assuming when you buy - it shouldnt be considered "down payment assistance"..  the title/escrow office doing the paperwork should break all of that out on your closing statement..  there may be other "prepaid" costs as well..  depending on your area, things like property taxes might be owed, but not billed yet - so the current owner may have to pay you a sum equal to a few months taxes, for when the bill comes..  that money is allocated, and not considered a "down payment" on your part, nor is it "assistance" on the seller's part.

Brandon Cao · Answer

Mark H.
Thanks for the clarification Mark, that's exactly how I feel.  I will admit that I did not know this for sure on my last purchase via FHA.  They counted the Security Deposit as part of the 6% Sellers assist, so effectively, I had roughly 4.5% Sellers assist, with the deposit covering the other 1.5%.

Unfortunately, it was on the day of closing that I saw the HUD-1 and I did not have the 100% knowledge nor the confidence to tell the closing company at the table that they need to fix this or no deal.  I won't make the same mistake twice.  I'm going to ask to see the HUD-1 at least a few days before settlement date.

Thanks for your reply!