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LuckySV
LIF Adult
Member since 10/05 4675 total posts
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FHA loan and seller responsibilities
I'm not sure if I'm understanding this correctly so I'd appreciate some input.
If a seller accepts an offer from someone with FHA loan the seller needs to give the buyer money towards their closing costs or downpayment? Why would anyone accept a buyer with an FHA loan then if the buyer has to give the buyer money? Help please  TIA!
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Posted 10/3/13 10:54 AM  |
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Prudential Douglas Elliman Real Estate
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ElizaRags35
My 2 Girls
Member since 2/09 20494 total posts
Name:
Me
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FHA loan and seller responsibilities
I think you may be confusing an FHA loan with a Seller's Concession
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| Posted 10/3/13 11:14 AM |
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LuckySV
LIF Adult
Member since 10/05 4675 total posts
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Re: FHA loan and seller responsibilities
Posted by ElizaRags35
I think you may be confusing an FHA loan with a Seller's Concession
That's very possible! So, if the seller accepts a buyer with an FHA loan they can do it without any concessions?
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| Posted 10/3/13 11:17 AM |
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Beth
The Key to your new home....
Member since 2/06 24849 total posts
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Beth
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Re: FHA loan and seller responsibilities
the seller doesn't do either of those things
a FHA is a loan for buyers with only 3.5% to put down
you can add a sellers concession- but that is also not coming out of the sellers pocket
it's the buyer adding money on to the loan - 3% max to cover closing costs
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| Posted 10/3/13 11:58 AM |
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jams92
Member since 1/12 6105 total posts
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Re: FHA loan and seller responsibilities
Posted by Beth
the seller doesn't do either of those things
a FHA is a loan for buyers with only 3.5% to put down
you can add a sellers concession- but that is also not coming out of the sellers pocket
it's the buyer adding money on to the loan - 3% max to cover closing costs
i thought a sellers concession meant that the seller agrees to pay x% of closing costs (or whatever is agreed upon)? wouldnt that mean its coming out of their pocket?
or do i have the terminology wrong?
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| Posted 10/3/13 1:22 PM |
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LuckySV
LIF Adult
Member since 10/05 4675 total posts
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Re: FHA loan and seller responsibilities
Thanks, Beth!
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| Posted 10/3/13 2:06 PM |
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LuckySV
LIF Adult
Member since 10/05 4675 total posts
Name:
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Re: FHA loan and seller responsibilities
Posted by jams92
Posted by Beth
the seller doesn't do either of those things
a FHA is a loan for buyers with only 3.5% to put down
you can add a sellers concession- but that is also not coming out of the sellers pocket
it's the buyer adding money on to the loan - 3% max to cover closing costs
i thought a sellers concession meant that the seller agrees to pay x% of closing costs (or whatever is agreed upon)? wouldnt that mean its coming out of their pocket?
or do i have the terminology wrong?
That's what I thought, too! But from what I was reading online a seller's concession is that the buyer is adding money onto the loan. So, if they buy a house for 100,000 and want to add 5000 in cc onto the loan the seller has to agree to sell the house for 105000 but then has to "give" taht 5000 back to the buyer. That's my understanding.
But, maybe someone could chime in here!
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| Posted 10/3/13 2:09 PM |
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jams92
Member since 1/12 6105 total posts
Name:
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Re: FHA loan and seller responsibilities
Posted by LuckySV
Posted by jams92
Posted by Beth
the seller doesn't do either of those things
a FHA is a loan for buyers with only 3.5% to put down
you can add a sellers concession- but that is also not coming out of the sellers pocket
it's the buyer adding money on to the loan - 3% max to cover closing costs
i thought a sellers concession meant that the seller agrees to pay x% of closing costs (or whatever is agreed upon)? wouldnt that mean its coming out of their pocket?
or do i have the terminology wrong?
That's what I thought, too! But from what I was reading online a seller's concession is that the buyer is adding money onto the loan. So, if they buy a house for 100,000 and want to add 5000 in cc onto the loan the seller has to agree to sell the house for 105000 but then has to "give" taht 5000 back to the buyer. That's my understanding.
But, maybe someone could chime in here!
ok that makes sense - thanks!
i never realized how much closing costs can be - im reading online that it can vary by state but estimate 6% of the loan amount - is that true?!?
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| Posted 10/3/13 2:38 PM |
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JenMarie
One day at a time
Member since 11/07 7397 total posts
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Jennifer
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Re: FHA loan and seller responsibilities
Posted by jams92
i never realized how much closing costs can be - im reading online that it can vary by state but estimate 6% of the loan amount - is that true?!?
Yes, absolutely true.
Also, as a seller it's recommended to "give" the buyer a $500 credit (I think) in lieu of completing some disclosure form. Every professional recommends giving the credit instead of completing the form. Not sure if this is what was being asked about in the OP.
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| Posted 10/3/13 3:40 PM |
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Re: FHA loan and seller responsibilities
An FHA loan is just a type of loan -- it's government-backed.
Really, the process is the pretty much the same with an FHA loan as with a conventional loan, from the seller's perspective. When it comes to the appraisal, the bank does look for "compliance issues" with FHA, usually safety stuff (smoke detectors, hand rails, etc.), but it's usually no big deal.
FHA loans are very popular, especially with first-time buyers, because the criteria to qualify is a little less stringent than with a "Fannie Mae" conventional loan. You can put a minimum of 3.5% down (but many of my FHA buyers put down more... I've had buyers recently get FHA loans with 5%, 6%, 8% down), so there's nothing stopping someone for putting more than the minimum down. But there's more room on credit and income requirements, too.
FHA allows buyers to finance some or all of the closing costs. You can finance up to 6% of the purchase price for closing costs with FHA. This is typically called a "seller's concession," but it's a bit of a misnomer, because the buyer is paying for it. The seller knows from the start -- the buyer is going to pay you x amount for the house (which is the negotiated agreed upon price), but the buyer is adding on y amount for closing costs.
So if the buyer agrees to pay the seller $300K for the house, and the buyer says they want to add on 6% as a seller's concession for closing (roughly $18K), then the seller knows from the start that they are getting the $300K but the contract price will be $318K to allow for the buyer to roll their closing costs into their mortgage. Note that everything is then based off of the $318K... the buyer's down payment is x% of $318K, the house must appraise for $318K, etc. The appraisal is actually the one area of concern for sellers, but many times buyers want to roll the closing costs in but don't NEED to. So they will agree in the contract that if the house appraises for the $300K but not the $318K, they will come up with the additional closing costs in cash (e.g., if it appraises for $310K, the buyer will roll in the $10K but have to pay cash for any additional costs).
FYI - Seller's concessions are not limited to FHA loans. Buyers can do the same thing re: financing closing costs with a conventional loan (if putting down less than 10%, they can only finance up to 3% of the price as closing costs, but 10% or more for a down payment = up to 6% of the price in closing costs, just like FHA).
So this is not unique to FHA -- In fact, I have a closing tomorrow where the buyers put 20% down (to avoid pmi) with a conventional loan, but rolled in $5K for closing costs so as to not pay it all out of pocket and leave themselves cash poor.
But FHA and seller's concession don't necessarily go hand-in-hand. I have plenty of sales where the buyers go FHA but pay their closing costs in cash.
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| Posted 10/3/13 5:29 PM |
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browneyes
All moms are working mothers!
Member since 8/08 4311 total posts
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Super Mom
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Re: FHA loan and seller responsibilities
we are in the midst of selling our home right now and I think u might be confused with something else I cant remember the correct name for it but we (the sellers) are giving the buyers $500 in return they can not sue us for anything that goes wrong with the home after they buy it. As a seller you do not need to do this but then if anything was to go wrong you could be held responsible for I think 5 years after the selling but I could be wrong..... Its basically saying we are not giving any home warrantee -- at least that was my understanding.
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| Posted 10/3/13 7:37 PM |
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05mommy09
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Re: FHA loan and seller responsibilities
Posted by jams92
i never realized how much closing costs can be - im reading online that it can vary by state but estimate 6% of the loan amount - is that true?!?
Its crazy- my closing costs were slightly over 6% and my lawyer was a friend of a friend and gave us a great deal!
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| Posted 10/4/13 7:27 AM |
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Re: FHA loan and seller responsibilities
Posted by browneyes
we are in the midst of selling our home right now and I think u might be confused with something else I cant remember the correct name for it but we (the sellers) are giving the buyers $500 in return they can not sue us for anything that goes wrong with the home after they buy it. As a seller you do not need to do this but then if anything was to go wrong you could be held responsible for I think 5 years after the selling but I could be wrong..... Its basically saying we are not giving any home warrantee -- at least that was my understanding.
What you are referring to is the Property Condition Disclosure law in NY, which is kind of pointless, imo. Sellers are required to EITHER fill out a "Property Condition Disclosure form," which is about 5 pages long and asks questions about the house (such as the age of various items -- roof, heating system) OR give the buyers a $500 credit at closing. 99% of the time, sellers give the credit on the advice of their attorney. I've never known a real estate attorney who would allow their client to fill out this form, and as an attorney myself, I agree. There is too much potential liability, even for an innocent mistake. So this law has really just become, in effect, an automatic $500 credit for the buyer.
But this has nothing to do with closing costs or giving closing costs to the buyer. It also has nothing to do with FHA loans... it is applicable on every sale of residential property in NY (with some exceptions based on type of property... co-ops, for example). But it doesn't matter if the buyer is getting an FHA loan or another type of loan or paying cash.
Also, giving the $500 credit is merely satisfaction of the seller's obligation under the NY state law, but it doesn't provide immunity against a lawsuit. So if the seller deliberately makes a misrepresentation about a material fact (and/or tries to hide a major problem with the house), they could still be sued, regardless of whether they paid the $500 credit or filled out the form.
Message edited 10/4/2013 7:29:56 AM.
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| Posted 10/4/13 7:29 AM |
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LuckySV
LIF Adult
Member since 10/05 4675 total posts
Name:
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Re: FHA loan and seller responsibilities
Thank you everyone! And thanks, Christine, for all the details!
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| Posted 10/5/13 7:47 AM |
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