Posts Tagged Sales

Mortgage Loan Tip: Closing Costs – Salt Lake City, UT

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:

Conventional loans:

  • Primary residence
    • 3% for LTV/CLTV > 90%
    • 6% for LTV/CLTV > 75% to 89.99%
    • 9% for LTV/CLTV < 74.99%
  • Investment properties
    • 2%

FHA

  • 6%

VA

  • 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.

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FHA allows “flipping” through 2011

Until last year FHA would not insure loans on homes that had been owned less than 90 days in an effort to thwart property inflation through flipping schemes.  However, last year in an effort to stimulate home sales and reduce the inventory of foreclosed homes on the market HUD waived the 90 day rule, allowing real estate investors to be able to sell homes that they had owned for less than 3 months to buyers utilizing FHA insured loans with only a 3.5% down payment.

HUD has announced that they are extending this waiver through 2011.  The following conditions apply to the sale of these homes:

  • It must be an arms-length transaction with no identity of interest between the buyer and seller.
  • The seller holds title to the property.
  • There are no sales of the property or multiple transfers of title within the previous 12 months.
  • The property has been marketed openly and fairly.
  • If the selling price of the property is more than 20% above the purchase price the seller must provide proof of repairs, rehabilitation and renovation costs and/or a second appraisal to substantiate the increase in value.
  • A property inspection is done and the report is provided to the buyer before they close on their loan.

This is great news for anyone looking to take advantage of the current marketplace and either looking to get a great deal on a home or for real estate investors looking to pick-up more properties this year.

As always, feel free to contact me with any questions you may have.

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