FHA Loans

[bean]

Ok, my broker was gone today and I can't get in touch with my lender to answer my question, so I'm turning to anyone and everyone who can answer a simple (hopefully) question!  It has nothing to do with selling soulfully, but FHA loans.  :-)  I'm a newbie, so I'm still learning about loans.  Question:  With an FHA loan, the buyer can ask the seller to pay up to 6% in closing costs, right?  Does the seller HAVE TO pay up to the 6% in closing costs?  Or is it optional?  And I'm wondering that if it's optional, then why is that different than just asking a seller to pay closing costs on a conventional loan?  Or is it that there's a cap at 6%?

Thanks so much!

[Jennifer Allan]

The seller doesn't have to pay closing costs at all - it's negotiated - the buyer can ask and the seller can agree or not agree.

I'm not up-to-date on the ins and outs of FHA financing, so you'll need to ask a lender for the specifics of the amounts and such. I always get confused on the percentages, too!

[Susan Haughton]

It is negotiable, so not required, but double check with your lender on one thing...I do believe the new FHA regs are lowering the allowed contribution from 6% to 3% but I am not sure when that is going to be implemented.

[bean]

Ok.  Thanks!  I'm assuming then, that a seller who has a short sale house probably isn't going to pay any closing costs.  I know we can ask, but I'm assuming the person would probably just laugh.   

I just want to be able to advise my client on the advantages and disadvantages of short sales.  Thanks everyone!

[Jennifer Allan]

It's not the seller who would be paying the closing costs in a short sale - it would be the bank taking that much less. It's fine to put seller-paid closing costs in the offer.

[Susan Haughton]

I would ask for seller paid closing costs but if the buyer truly cannot come to the table without their closing costs being paid, I would make very sure they understand the majority of short sales do not close and their odds of getting closing costs are not very good.  It's possible, but not probable.

[Bill Saunders]

This brings a related question as to wording. "Seller to pay $XXX f the buyers closing costs and prepaid items". not "up to...".

I have always maintained that a seller could say, "OK, I'm going to pay $5.00 of those closing costs." Also the inclusion of the "prepaid items" can help the buyer obtain a better position, correct?

what are your thoughts, oh Great Ones??

[Jennifer Allan]

Oooh, this is one of those REALLY dumb thing! "Up to?" I've seen so many buyers get screwed by this one when the costs didn't add up to what they negotiated and they basically walked away from money I believe they were due.

I always put a provision in my contracts that said something like "If the actual closing costs are less than the negotiated amount, the purchase price shall be reduced accordingly." Lenders didn't always like it, but I tried!

[Bill Saunders]

I like that...I'll start putting that in also.

Thankee kindly Ms. Beach Babe

[ChicagoSoul]

I've yet to see closing costs paid on a short sale, but you can always ask. As we are all discovering, every short sale transaction is different. There aren't really any hard and fast rules. I personally would recommend NOT writing on a short sale property for a client who must have seller concessions.

Regarding 6%: it's currently the cap. Probably changing soon.

Regarding wording: you must be very specific and consistent. Be sure that the exact same amounts of concessions are reflected on both the contract and the FHA rider. I always write it like this: "6% of purchase price for closing costs & pre-paids".

Prior to writing an offer for someone who needs concessions, I have a talk with their lender to find out exactly what the buyer needs. I've had buyers that were cash poor and couldn't make the deal work without closing cost assistance. I need to know that upfront to help the buyer come up with what they want to offer. If they need a full 6% they can't lowball!

[bean]

I'm leaning TONS from you guys.  Thanks so much.  And Jennifer, good idea to not write "up to".  That's how I was trained to word it, but what you said makes much better sense. 

[Chuck Capan]

The "up to" is a good one to avoid.  Most of the things I see go wrong on contracts are the fill in the blank areas.  My favorite "fill in the blank" mistake I've seen was when the buyer's agent wrote "Seller shall pay 6% of Buyer's closing costs"  The seller's attorney pointed out the "plain language of the contract" at the closing table.  Buyer and Buyer's agent were friggin' hopping mad.