Seller Credit At Closing????
I have an appointment with a realtor to make an offer on my first investment property tomorrow. It's listed as a 3 unit, but actually is deeded as 2 sep. properties (2 sides of a double; one w/2 unites, one single unit). Appears to be a very solid home that needs some updating--mostly cosmetic stuff like flooring, paint, etc.--and some new roofing. One of the 2 detached garages also needs a new roof (and some structural repair as well). I plan to have another electric meter and furnace installed in the 2 unit side so the tenants can pay their own heat. It's listed at 189,900 for the whole building. I was planning on offering a total of $200,000 ($90,000 for the one-unit half and $110,000 for the 2-unit half in a single offer), with $25,000 credit at close toward closing costs and repair. Talked to 2 mortgage guys indetail about the offer (one broker, one banker) and they both said it was no problem. But my realtor is FREAKING OUT about the high closing credit. He says it's illegal according to HUD regs to get more than like 3% credit toward closing and in all of his 25 years in real estate, he's never seen such a thing. (This guy owns 25 single family rentals, so I thought he was a good choice!) He went on about how he's not going to jail over this deal and was not appeased by my assurances from the lenders (one of whom he recommended.)
Am I missing something here or what?? I have a good friend who's been a REI F/T for more than 10 years and he's telling me to just fire the realtor and have someone else represent me on the deal. I don't feel like I can do that, ethically, as I've been working with the guy for a month or so now.
I'm sure that it won't cost me all of the credit to rehab the place and I don't want a rehab loan. I was hoping to recoup some of my down money
and closing costs.
Sorry for rambling! Any suggestions, PLEASE!!!!!
TIA!!
There are two limitations that may apply in your case. The first is cash back at closing. Most lenders will not allow for you to get cash back at closing (other then incidentals) unless you are doing some sort of rehab loan.
The second limitation may apply if your intent is not to get cash back at closing, but to actually have the place repaired prior to closing, and have the seller credit you that amount at closing. Most programs will cap seller contributions at 6%, and some will not go over 3%.
$25,000 would exceed both.
Your realtor does have a valid concern, however, if you are trying to do this outside of the transaction (under the table). But if everything is spelled out in the contract, and your mortgage bankers/brokers are experienced and are aware of the amount of the concessions, then your realtor can't be held liable.
I would have another conversation with your mortgage people, and go over the numbers one more time. If they are okay with it, you are good to go. But make sure you check, as I know that none of the programs within the bank I work for will allow this.
Good luck, hope this helps.
Vasiliy
I am by no means an expert here but if I am to understand correctly, you are getting the 25k at the closing table yes? I would assume that means the lender knows and is ok with it right? If the lender doesn't care or allows unlimited seller credits, then why would the realtor care?
[addsig]
Thanks for your replies.
I would not be doing any repairs to the property prior to closing. Everythign would be done afterwards.
Not to sound too naive, but both lenders that I spoke with told me to put the credit requirement in an addendum to the contract, not in the main contract itself. Basically, they say that it's done all the time and no big deal as long as the property appraises (which I don't expect to be a concern), but the bank doesn't want to "see it." Is that what you mean by "under the table"? If so, then my realtor is right?????
If that is the case, is there a way to structure the contract legally to get whatever credit is allowed (3%?) toward closing costs as well as the credit toward repairs (some of which I would do myself) at closing without having to get a rehab loan?
Thanks again,
Lynne
Lynne,
I see mortgage brokers say the "it's done all the time" qoute often, but I'm a bit surprised that a bank officer said it, too. Here's the problem. What the lenders intend to do is to "forget" to give the underwriter the addendum portion of the contract. While this may be done "all the time," it's still illegal, and I seriously doubt that your loan officer will 'fess up if it is ever caught.
If lenders will finance it this way and you still want to do the deal as such, here's what you should do. When you present your package to your lender, have a summary sheet with a list of ALL the documents that you supplied to the loan officer. Have the loan officer review, sign and date this paper AND retain it for your records. This puts you in the clear. If the lender comes back later and says that they didn't receive all of the paperwork, etc., then you have your contract that the loan officer signed verifying that he received ALL of the documents.
As far as your real esate agent goes, the above should satisfy him that he won't get into trouble. If he still will not present the offer, then I'd fire him and find someone else to work with.
Roger