Posts Tagged Real estate broker/agent
Typically real estate agents will negotiate for the seller of a home to contribute up to 3% of the purchase price of the home towards the buyer’s closing costs. What many don’t know though is that this really is the minimum amount that can be contributed. This is especially important when purchasing a home under $150,000 because closing costs can many times exceed the 3% and the buyer will have to come to the closing table with money above their down payment.
The reason this happens is that there are both fixed and variable closing costs. Some fees are fixed regardless of the loan amount (such as underwriting, processing, tax fees, appraisal, etc.) and others are based on a percentage of the loan amount or purchase price (origination fee, points paid to buy down the rate, title insurance, property taxes, per diem interest, etc.). Those fixed costs represent a larger percentage of a smaller loan than they do a larger loan.
So to that end, here are the guidelines for allowable seller contributions toward closing costs:
- Primary residence
- 3% for LTV/CLTV > 90%
- 6% for LTV/CLTV > 75% to 89.99%
- 9% for LTV/CLTV < 74.99%
- Investment properties
- Seller can pay 100% of discount points and borrower’s non-recurring closing costs.
- Seller can provide an additional amount not to exceed 4% of the estimated reasonable value to assist the borrower’s payment of buydown points, prepaid expenses and funding fee.
Be sure your Realtor talks with your loan officer prior to putting an offer on a house. You want to make sure that enough seller concessions are negotiated to cover all your closing costs so that you don’t have to pay anything more than your down payment.
Let’s face it, the Housing Valuation Code of Conduct (HVCC) has been heralded as the greatest disaster in real estate legislation… Ever. It’s created a middle man – Appraisal Management Company (AMC) – who a lender has to order an appraisal through so that the loan officer has no contact with the appraiser. The idea was that this would prevent the loan officer from influencing the appraiser’s opinion of value. Fair enough, sounds reasonable. Except…
In reality it created a middle man, the AMC that upped the price of appraisals by $100 or more, while bidding-out the appraisal work to a pool of appraisers, the lowest bid usually got the job and the AMC kept the difference. I heard stories from appraisers of being offered $75 from the AMC while the AMC was charging the borrower $450. In the days before HVCC the appraiser would charge $350 and that was his compensation (minus and split he may have if he worked for an appraisal company or was an apprentice). All appraisers saw their income cut by 40% or more overnight for doing the same work – and I didn’t know any rich appraisers to start with, either.
HVCC also dictated that the appraisal be paid for in advance by someone with no financial interest in the transaction (such as the loan officer or real estate agent) BEFORE the appraisal could be done. The days oft rolling-up the cost of the appraisal in the loan, or having it paid by the seller through seller concessions was gone.
So the borrower or buyer now had to pay for the appraisal by cash or credit card before the loan transaction could be done. I presently have several clients who’ve paid for appraisals that came back with a value too low to refinance their home or purchase the property they were looking at. They are all out $400 – $550 and don’t have a refinance or a new home to show for it.
Before HVCC I could call my favorite appraiser and say “Adam, my client is thinking about refinancing his house, can you look at some comps and tell me if you think an appraisal will come-in high enough to do the loan?”
If he said “Nope, there aren’t any comps to support that loan amount” I could go back to my borrower and say “I don’t think this deal is going to work, maybe we should look at it again in 6 months or so”.
Now days a home owner has to pay for an appraisal to find-out if a refinance is even possible. If it isn’t, he’s out $400-plus for nothing.
Tell me how that benefits the consumer the law was intended to protect?
Well, HVCC sunsets in November, and the Financial Reform Bill signed into law by President Obama this week makes some sweeping changes to the appraisal process that should be more borrower-friendly. If Congress doesn’t re-up HVCC in November we’ll really have something. Below is a link to a good blog that outlines the changes to the appraisal process contained in the Financial Reform Bill. Hopefully it will help many appraisers get back to work and be able to feed their families again in a field they trained for two years or more in before they could become licensed.
Related articles by Zemanta
- Appraisal Institute Applauds Financial Reform Bill, Calls on Congress to Pass Final Version (rismedia.com)
- New guidelines for choosing appraisers, comps (seattletimes.nwsource.com)