Hello.

I have an LSR for a buyer I'm taking out in the next couple days. This will only be my 2nd buyer. She really doesn't have any money for closing costs. We are prepared to make a respectful offer on a condo but ask for seller to pay closing costs.

What's the best way to cover all my bases as far as getting my buyer to come to the table with as little money possible? Having to come with no money would be ideal.

Right now my plan is to have the seller pay for everything that is asked about in the contract (like inspections, home warranty, loan origination, HOA transfer fee, ect), but also write in "Seller to pay up to 3% of sales price for buyer's closing costs."

Any advice would be appreciated.

Thanks!

Have you talked to your buyer's lender? Are you sure 3% will cover all closing costs and prepaids (appraisal, etc)? Can your buyer put down any earnest money? I think they should at least be able to pay for their own inspections and then ask for closing costs to be paid for by the seller.

It is very common to ask sellers to pay for the closing costs. Keep in mind that your buyer will have 2 types of closing cost. one coming from the realestate transaction and another coming from the mortgage they will obtain.

You need to talk to their mortgage banker as many bank will not fund if certain closing costs are paid buy sellers or agents.

This is true...Also, on the flip side...there are many lenders out there that will allow up to 6% and sometimes 9% seller concessions. I have seen the 9% only once in 3 years but there are many lenders out there that will allow 6% seller concessions. Im sure 6% will cover ALL costs to close.

I'm not sure if the lending requirements vary from state to state. But here in Texas, the seller can contribute up to 6% of sales price if it's for a personal residence.

Your lender will be best to tell you what are the closing costs involved (lender's side) and estimate the title side..... Then there are also prepaids such as property taxes. Some lenders require for the applicant to pay at least the appraisal and credit report fee. Some dont require any at all. It all just depends. Like josemase said, usually the buyer pays for the inspection and option fee (if there's one).

All that being said, it sounds like your buyer is very concerned about not having any out of pocket costs..... perhaps she doesnt really have any money? Then would it still be a good idea for her to purchase a home? It's generally not a good idea for "poor" people to buy homes. Murphy will move in their spare bedroom and lunch becomes an emergency. I know you didnt ask for this and I do apologize if I have offended you, it's not my intentions.

Wow...kinda harsh, don't you think? I hope you are not involved in this business... If you are, you should know better than to say a "poor" person shouldn't have a home. In many situations a "home" is all someone needs to get back on their feet. A "home" will allow you (in most cases) to consolidate bad debt and get you back in good credit standing. A "home" will give you the sense of security you didn't have living in an apartment. I can see what you mean if you are earing 30k/yr and are purchasing a $300k home....that doesnt make sense but just saying a "poor" person shouldn't have a home is a sorry statement.

I know you said you didnt mean any offense, but, thats like me making a racial slur and then saying, "sorry if i offended you".

Sorry for the rant.

I guess only the rich and overprivileged should be homeowners. What happened to the American Dream where everyone owns a home? I say if you can get the seller to pay for it, so be it. Ask for it all, all they can do is reject, or counter. If she can afford to pay rent at a comparable payment level than go for it.

Well, thanks to those of your who suggested I talk to the lender. I didnt' even think to ask that question.

And to the guy who suggested she not own a home because she can't afford a big upfront payment, well, I am happy that you aren't her agent. My client just like most Americans: she lives paycheck to paycheck. One check a month pays her rent (soon to be mortgage), the other her other bills. She only has a couple hundred bucks left over from each check and has been saving, but just doesn't have much left to put away even when she's trying.

In my opinion, she is the perfect homeowner. No longer will she have to deal with her rents going up. She will be earning equity so that someday, she will not be living paycheck to pay check. Albert Einstein said that definition of insanity is doing the same thing over and over again and expecting different results. Well I respect and admire my client for taking initiative and making a positive change in her life.

I got into this business to help people. It's obvious that you did not.

I know my post will not come easy to most people and again, I am not hear to make anyone feel bad. I agree with the comments made but I'm here also to share mine. (We all learn from each other)

There are alot of articles out there to discuss Buying vs. Renting....But in many cases, no one guarantees that mortgages dont increase over time. If you were on a fixed principal plus interest payments, property taxes do increase over time also. You could say that the salary do increase over time, but the price of homeownership in the past few years, have soared past inflation: price of gas, utilities, etc.

I have seen some buyers that have made their budgets perfectly fit in with their mortgage payments, etc. (paycheck to paycheck living). But with increase in property taxes, and other living expenses can eventually make the budget break. (it may not, but it could). They do end-up refinancing several times over the years.

MoV: You are a loan officer, you know this story far too well.
HR: The "rich" definition comes in all shapes and forms. Most people defined rich in a "wealthy financial way". To some people, having $1000 is rich. To some, having 100K is not quite enough. I think the American Dream is honorable and great. Everyone (that can afford a house) should own a house. I understand that then the term "afforadability" can vary from people to people. I'm not here to battle this one.
K: Again, I am not here to upset you. I am very happy and excited that your client is about to own an American Dream. But she should also know what her future problems could be so she can prepare for them (Sounds fair?) I did not attack you or your personality/ character, I really feel you shouldnt to me also. You had asked for advise, perhaps just on the seller's closing costs?

From what I've seen (again most Americans), homeowners and renters shop and purchase things differently. I just think that having a good savings for rainy day when you own a house (obviously based on what you said, she's been saving with every paycheck). Things in the house do fall apart. Owning a house to pay the mortgage is just part of the equation.

Well explained...why didnt you just say that the first time?

I think using the term "poor" and saying they shouldnt buy a home was the issue. Yes, i have heard of horror stories of people breaking their previously anchored budget due to hi taxes...especially here in TX. So i see what you're saying...I would say next time just avoid using directed labels. =)

If your buyer lives paycheck to paycheck and only has maybe a few hundred dollars left over each month what will happen when she need an emergency repair? Granted she's looking at condos, but still. What if her appliances break down, or what if there is some type of special assessment, where will she get the money? People always act like home ownership is the best thing, but the costs associated with owning are much higher than just the mortgage payment. Fat Maxvv obviously meant "poor" as in lack of extra cash. Home ownership isn't right for everyone, and just because I'm a Realtor doesn't mean that I'm obligated to pretend that it is.

You definitely need to talk to the lender. I hope this buyer is already prequalified. Lender can tell you how much she can afford LTV, and how much closing costs are, and how much seller is allowed to pay. It can be done because I just closed one where the buyer had zero due at closing, and they were not by any means "poor". They wanted to use their cash to upgrade the home.

Give us all a break Mo,

Your logic that having a home allows people to consolidate their debt is just plain self-serving! In many cases what happens is the "nice" lender agrees to up to 125% of appraised value to consolidate. Now the homeowner has a loan for well over what the property is worth!
It is just the facts that there are some people whose income and financial situation make them poor choices for home ownership. What happens when the frig goes out or the roof starts to leak? A renter can call the landlord and get these fixed but who is the owner going to call when his home is already mortgaged to 125%???


If you cannot afford to pay any of the closing costs and do not have some cash reserves for after the purchase for those unexpected problems you should not be buying that house.

Life Reality 101....There are poor people that should not be buying houses till they learn some fiscal responsibility? Just the way it is and if I have offended anyone well too bad it is time to wake up and smell the coffee! Look at the foreclosure rates and tell me I am Wrong!

This statement is, in my opinion, absolutely right. I work in the REO business enough to know that the majority of them are a product of overmortgaging. The couple I just mentioned has a good income, and their new house payment will be less than their rent is now, and their credit was tops. Now, here's my question: If we have a buyer like this that has the ability to get the loan and comes to us to buy a home, is it our responsibility to tell them they can't? I really don't know if we should get into financial advising.

I think foreclosure rates are the result of poor lending practices, not poor people. Look at all the 2nd and 3rd notes that were allowed in over-inflated markets. This subject has been bashed enough. We were discussing someone asking to have all their closing costs paid and it has turned into a free-for-all rant about real estate semantics. People with money get foreclosed on too. I know plenty of people that were flaunting their big equity cash outs that are now upside down. Let's just agree to disagree and move on. Shake on it?

I had no problems at all explaining to my clients the downside stretching themselves to the max. I always ask them to stop a minute and ask themsleves what happens if something catostrophic happens with their financial situation such as both car take a dump and they have to go out and buy 2 new cars? Can they afford the payments? Will their debt to income ratio be so high that they are gonna pay out the nose on the interest rate? If they insist that they can handle the payment then I have done all I can do. If you don't feel comfortable then have them consult a neutral 3rd party such as a financial planner who often will give a free consultation.

I have delt with way too many REO's where good people fell to the pitch that Mo was just making.

Shake on it??? sure...after i respond to Mr. Moderator.

I believe i was responding to the derogatory use of the word "poor". I wasnt trying to directly attack what fatmaxxv was trying to explain. Once he did explain...all was good.

And by the way if you were smart enough to try and use the 125% loan as a reason to accuse the "nice" lender of immoral lending you should first understand that the 125% program is VERY HARD TO QUALIFY FOR. A lender will not lend over 100% unless certain guidelines are met such as:

LOW DTI
INCLINCING MARKET VALUE
EXCELLENT MORTGAGE HISTORY
MONTHS IN RESERVES

So the average (in your words) "poor" borrower wouldnt even qualify for that loan. point made.

Now, we can shake on it. =)

Scott,
I think it is more of what the reason they want or need their closing costs paid. If it because they have no money for closing costs then perhaps they are rushing the purchase. If they will have cash reserves that they plan to use for updates or emergencies then asking for clsoing cost to be rolled into the loan is a good idea. This is hardly a free-for-all on real estate semantics!

Mo,
Bull! You know it and so does everyone else and here is the one word to prove it. Ameriquest! Need I say more?

You made something out of Poor by jumping to conclusions that fatmaxxv did not mean. If you want to continue on debt consolidation perhaps a post in the mortgage forum would be appropiate.

I didnt bring up the 125 loan...and im pretty much done with this topic i guess i shouldnt have replied to fatmaxxv's comment.

Oh, and in no way am i saying what Ameriquest did was morally sound. By the way again...you're way off...ameriquest inflated values of borrower's home to lend more UNDER 100% ltv. (not the same as a legit 125% loan)

Please...lets just drop it. I signed up for this forum to provide info and get info, not butt heads with moderators. I can do that with my girlfriend AFTER work.

Okay, point taken on the predatory lending (Ameriquest, ouch...lol). Let's give Mo the benefit of the doubt. Here is Uncle Sam's take on the idea

http://www.hud.gov/initiatives/homeownership/

Let's drop it, we can do this all day and not make a dent.

This stuff is funny!lol

I have people roll in closing costs all of the time and do 100 percent.The average appreciation rate in Ga is 5.9 percent annually but this is taking the whole state as a cumulative.Some areas like the one i live in are about 10 percent app. or more.

I think it really depends on the market.California,new york,florida,etc. the highly volitile markets it might not be a good idea to go 100 percent.

Mostly for my clients it doesn't make sense to put 10k or more down.It doesn't lower the monthly payments much at all and the bank is making interest off of there money instead of themselves,usually the difference in the rate from a 90 percent to a 100 percent loan isn't that great but is dependant on the score and full,low,no doc etc.,w-2 or self employed.

The bottom line is every client is different and that is why there are thousands of different loan programs out there.I usually recommend a fixed for at least 3 years,no 6 month or 1 to 2 fixed then it goes adjustable.I don't like those and recommend they hold off for a few months and get there credit up a few points to qualify for a program with better terms and rates.

Someone could also get a 100 percent loan but say the house is worth 150k but they only pay 120k.It was a 100 percent loan but they still have great equity.

With owning a home you get to deduct your interest and property taxes lowering your tax bracket.The time i could see renting making sense is if you are in a cooling off market that is volatile,then you would wait for it to dip until it started rebounding before purchasing.
jmho

huh?...are you at happy hour? as i was reading i felt i was drinking more and more....lol =)

by the way i was jp...in case someone attacks me. lol

i often advise buyers to "finance" closing costs. i know many people that do the same. it's not about having or not having money it's about the fact that instead of spending 5k today you get to pay about $31/month which is not felt by an average person.

I just wanted to give an update on my buyers. (I am the OP).

My buyer's father is going to cover any closing costs that she might have. We are going to ask for 3% from seller, but my lender said we cannot ask for more because of the type of loan.

Ask Coldwell Banker about their most recent Fine assesed by HUD. Both Mortgage Lenders/Banks and Real Estate Firms have bad apples.

Jabronie,
What are you talking about?

Was just commenting on the pizzing match between the two board members above. One appears to be a fellow agent and the other a MB. Both need to realize there are good and bad apples in both.

If you are asking in regards to Coldwell Banker. Just do a search on HUD's website. A fine that size should send shoch waives to all of us Broker/Owners.

I hope she got the condo! I deal with a lot of marginal buyers myself.

HOWEVER, if she's really got so little paycheck compared to her expenses, then she's cutting it pretty dang close and it's at least debatable whether it makes tactical sense for her to purchase right now. I guess it would depend on what rents are like in that area. She will be poorly positioned to deal with any kind of "homeowners" emergency, or any kind of interruption in her income stream. If she can rent for considerably less than the mortgage on this condo, she'd probably be better served to save for a year or so longer. If she screws this one up (buys it and goes down in flames for any number of reasons), she may never get another chance! If rents are several hundred less a month than this place, she could come into the market with $3k-$4k in a year, which makes more sense, IMHO. You could still try to set up a scenario with no out-of-pocket for her and she'd have the cash in reserve.

But who knows. When my wife and I bought our "16 acres and a funky cabin" 15 years ago, WE were pretty marginal and it worked out for us.

-jeff

Well back to the orig question - it's up to the lender how much they are willing to allow the seller to pay. I bought my own home in 2005 for 100% financed and my lender allowed up to 6% so I bought it for $160000 with the seller agreeing to pay up to $6000 in closing costs. I still ended up "technically" paying it - but it was rolled into the 100% cost. My earnest money check was never even deposited because my attorney put a * next to the $500 amt and had it written *To be returned to buyer at closing due to 100% financing.

The lender would not allow me to have the seller pay for the home insurance (was about $600 for the 1st year) and they would not allow the escroed taxes to come from the seller. I ended up not escrowing anyway because my lender charged a fee to do it at time of closing but I could call once I was on their books and set it up for free. I believe they would have allowed them to pay for the home inspection, but I didn't ant them to because if they paid for it - they control it - and I wanted to be in control of it. They also only would pay for 1 lawyer - luckily my lawyer and my broker work hand in hand so we used the same lawyer so it didn't come up, but if the buyer hires a separate lawyer - it may not be covered.

So while I agree broke people shouldn't get a house - there is broke and there is like flat out destiture. If you don't ahve a big amount of savings but are sick of throwing your money away - great - IF you have some way to get money if there is an emergency. If you scrounge your pennies to go grocery shoping, then you have issues....

EDITED: OK only read the first page of responses before I replied, lol.. but I'm leaving my reply just in case anyone cares, lol.

I just sold one of my investment properties to a buyer that has no money. It is scary when you see it on paper. We paid all closing costs $9,500 because they did not have a penny. We went back & forth until we realized no funds were available & thanks to some members of the this board that suggested not to loose the deal we went thru w/it. The offer was the amount we knew it would sell for, the closing costs were high but that is the average here in florida 4.2% of sell price. They purchased w/no money down, 2 seperate loans 80/20. Amazing, I do hope they can pay for it and I do hope their agent advised of the taxes because here in So Florida they are very high compared to the wages residents make.