Homebuyers: You can use a seller credit to your advantage. Here are the rules and requirements in short, quick form.
A seller credit or seller contribution is money the seller gives you to pay for closing costs. Some or all of your closing costs, including your property taxes and personal hazard/fire insurance may be paid for by the seller. If the seller pays all your closing costs, you will pay only your down payment.
The seller cannot pay for any of your down payment, per law.
If there is extra money from the seller after all your closing costs are covered, the extra money stays in the seller’s pocket. Homebuyers cannot receive cash from the seller, not even one dollar.
If there is extra money from the seller credit after all your closing costs are covered, ask your loan officer about using that money to buy down your interest rate. If there is enough cash available, you could use it to pay for a point or even a half point (a point is a percentage point, and it is interest paid up front) to get a lower interest rate.
If the seller is paying for your lender fees, then the lender sees no reason to waive or lower any junk fees they may have, because you aren’t paying for them anyway.
How to Get a Seller Credit
In order to get a seller credit, you must have it included in your Purchase and Sale Agreement. Therefore, you ask your real estate agent to negotiate it for you. It is part of the price negotiation of the home. The lender does not handle the negotiation of a seller credit.
The seller credit should be stated as a dollar amount, such as “the seller will contribute $5,000 toward the buyer’s closing costs, including prepaids.” Or, the credit can say something like, “The seller will pay all of the buyer’s closing costs, including prepaids, up to $XX maximum.” The credit should not be stated as a percentage. If stated that way, the lender will require an addendum to the purchase contract that states it in an exact dollar amount, which causes more time and hassle later.
(Prepaids = your property taxes, homeowners/hazard/fire insurance, and days of prepaid interest.)
Interesting Strategy You Can Use
When the property inspection report comes in, there will be flaws and needed repairs exposed. This presents a second opportunity for a homebuyer to ask for a seller credit. If the seller doesn’t want to do the repair work, the seller can offer to credit you cash toward your closing costs instead. This preserves your own cash so you can use it to make the repairs after closing. If you are the handyman type who likes to do your own repairs, you might come out financially ahead this way.
The Take-Away: Discuss seller credit with both your real estate agent and your loan officer. Your agent will help you get it and your loan officer will help you use it to your best advantage. Remember, with a purchase loan, you cannot take cash out of the transaction (that is only allowed in a refinance when the borrower already owns the property).
Are their benefits to a 1st time home buyer with a special needs child (down syndrome/autism)??
There are state programs for households with a disabled person. For example, in WA where I live, there is the HomeChoice program that provides up to $15,000 for a down payment for qualified borrowers who have a disability or a person with a disability living with them. There is a 1% interest rate on that down payment loan. There are income limits, by county.
Other states might also have the HomeChoice program or a similar program. You could try doing a Google search for HomeChoice + your state.
my estimated closing cost is 6660 and my down payment is 7,461.The seller credit is 3,785,my extimated cash to close is9836.How must would I the buyer have to pay for closing cost not including my down payment
Estimated closing cost of $6,660 minus what the seller is paying for you, $3,785 = $2,875
My brother’s real estate agent and lender made him lose thousands in seller credits. Those credits could have been used to pay for the upfront FHA fee of 1.75% in full. We brought up our concern to both of them one day before closing, but the agent stated that the seller would back out if they redo the numbers in order for my brother to get all the credits (since the seller would have to pay that much more in closing costs). My brother decided to close, because he really wanted the house and it had been a long, painful, process. We also thought he could go after the credits/money after closing since those are stipulated in the real estate contract. Both the lender and the agent seem to have worked in favor of the seller. The lender sold my brother a larger loan, and the seller saved thousands in closing costs, with my brother left losing that much money. Closing was on May 17.
There are no FHA or mortgage restriction that prevented my brother from getting the full credit. Everything was set up that way by both the agent and the lender. My brother was set-up to lose that money by both his very own agent and his lender.
Is there anything my brother can do at this point against his agent, the lender, or the seller?
Carlos, I’m not sure I understand your brother’s situation. Are you saying that seller credit on the purchase contract went unused and the money remained with the seller? If so, it sounds like the loan officer did not act in your brother’s best interests.
Who was the lender? A bank, credit union, direct lender, or a mortgage broker?
A mortgage broker has a legal responsibility to act in the best interest of the client, which is one important reason why I advocate choosing a mortgage broker over a bank or direct lender.
Now that the loan is signed and closed, it cannot be undone. However, you can file a complaint again the loan officer and lender with the Consumer Finance Protection Bureau. Do a Google search for CFPB + complaint, and it will come right up.
Yes, the seller credit was only partially used, and the rest stayed with the seller.
The lender is a commercial bank, and the loan officer clearly did not act in my brother’s best interest.
So besides filing a complaint against the loan officer and lender, there is nothing my brother can do to get the rest of the credit? Even when the contract stipulates the credit? Could that be a breach of contract since my brother did not get the full credit stipulated in the contract?
Also, his realtor did not assist him after finding out, before closing, he was not getting the credit. Instead, his realtor tried to convince my brother to close arguing the seller would back out. Before closing, what were the steps my brother could have taken to get the credit? What were the realtor responsibilities in order to act in my brother’s best interest? Can we file a complaint against his realtor as well?
After closing, we spoke with both his realtor and lender, but the only response was that my brother should not have signed/closed, and that there is nothing they can do at this point (all of this in a very unprofessional way from them).
Carlos, please email me a copy of the Settlement Statement or Closing Disclosure. Send it as a PDF attachment to my work email at CarolynW@wfmtg.com. I will look at it on Monday when I am in my office.
I’ve been looking for your Closing Statement to help you but have not received it. So, I will say this:
It is not the Realtor’s fault that the lender didn’t do a good job. The Realtor did a good job in getting the seller credit. The Realtor has nothing to do with the loan.
The loan officer is at fault for not giving you all the credit by buying down the interest rate, buying a deluxe home warranty, or if nothing else, applying it to principal buydown.
This is one of many reasons why I do not advocate going to a bank for a mortgage. Go to a mortgage broker for a mortgage. The loan officers at banks don’t even have to be licensed! They also are not legally required to look out for your best interests; only the mortgage broker has that fiduciary responsibility.
Federal law requires that home buyers have 3 days to review the Closing Disclosure before signing. That is the time to ask for changes. Changes to the loan can be made during that time. A change to the loan does not threaten the sale, because the credit is in the contract. The seller cannot back out at that point. If the home buyer doesn’t ask for anything and signs, then that contract stands. They can’t go back later and change the closed contract.
I hope your brother will stop doing business with that bank as an act of protest and move to a more ethical and caring bank. I’m sorry this happened to him. It is a tough life lesson to learn.