Tricks To Increase Closing Credit from Seller?

Question

I'm looking for a way to increase the amount of seller credit at closing. I have a deal for an agreed upon price i.e. 300k, but it's worth more, i.e. 350k. So i'm "purchasing" at this price while trying to maximize the amount of seller credit to get to the agreed upon price of 300k.

Conventional loan guidelines only allow 2%, but some other methods to increase closing credit is:

1. Have seller put more into security deposits

2. Increase the percentage of prorated tax credit to 140%

3. ???

I'm looking for other methods. Does anyone know any?

I've thought about:

1. A separate escrow account for after closing (this is mortgage fraud so wouldn't work)

2. A repair escrow for repairs needed on the property (I don't know if this is allowed thought).

Any other methods are appreciated.

Patricia Steiner · Answer

I'm still stuck on the word "tricks..."

It sounds like you're trying to rewrite the deal by utilizing seller credit - but it's a limited opportunity vehicle.  It just is what it is and it's never going to be what you're trying to transform it into being.  What you're proposing will raise red flags and compromise the deal.  "The trick" is to let the price drive the deal. If you don't like the price, don't do the deal.

Chris Mason · Answer

Point of clarity, Fannie does residential investment property financing. I extrapolated from the OP's 2% that it was a Fannie loan.

If it's not a Fannie loan, for example if it's a non-QM loan or your cousin Billy lending you the money, then it's up to that individual lender what their rules are, assuming it's allowed within the law (Fannie guidelines are their guidelines, not the law).

Randy E. · Answer

Thanks Chris.

Randy E. · Answer

Chris, please clarify for me.

If the loan is not Fannie financing and is an investment mortgage, what is the cap for seller credits?  I've wondered about this before, but never looked it up.

Kevin Danikowski · Answer

@Patricia Steiner True, the price drives the deal for me, but when it comes to putting a down payment, I only have so many funds available, and if I can go from a lower LTV to a higher one, I can get more favorable terms and thus increased cashflow, this is the reason behind my ask.

@Chris Mason Excellent point, I may be able to cash out refinance a small amount next year, just focused on reducing the net down payment for now though.

Chris Mason · Answer

Reduce the sales price, which will in turn reduce your loan amount. Being less in debt means some combination of lower payments, more net proceeds should you sell without cash out refinancing, or more net proceeds from the cash out refinance should you cash out refinance. So you still get the money, it's just delayed a little bit.

Kevin Danikowski · Answer

@Chris Mason Correct, 2% "interested party contributions.".

The methods above work (i.e. tax proration, 2% seller contribution, and increasing rent security deposits), however I am looking for other additional methods to use, would you have any to offer by chance?

Chris Mason · Answer

The guideline doesn't say max 2% for seller credits, it says max 2% for "interested party contributions." (Lurkers: OP is buying an investment property with Fannie financing, if that isn't you then the number will not be 2%)

Renaming it to something else in the contract will not work, they're just going to add it up and divide by sales price to see if it's over 0.02.

You might have some luck getting escrow to play with the property tax prorations, but I doubt it.

Tricks To Increase Closing Credit from Seller?

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