Unable to understand…please explain

[Jenny Ng]

Hi, please explain the information at the end of the post to me as I cannot sleep thinking about it. My lender is not returning work for a few more days so I wanted to ask this group about seller concession on a conventional loan (Freddie Mac) through Chase.

The sale price on the contract is 400K but the seller agreed to give me a 36K seller concession and pay the 1% (4K) flip tax, bringing my purchase price to 360K.

I have to put down 10% (40K) deposit when I sign and I plan to put a minimum of 30% down payment.

I have an unsigned contract with a contingency that I will walk away from the sale if I do not get the 36K seller concession and 1% flip tax paid by the seller.

I would appreciate it if you can explain what the bank is saying below. Thank you.

Bank:

As you noted, the Agency maximum allowable interested party contribution is limited to 9% (or $36,000) based on an LTV < 75% and a $400,000 purchase price.

The additional 1% being paid by the Seller for the customer's flip tax would be considered a

Sales Concession since it exceeds the limitation. A Sales Concession is deducted from the PP when calculating the LTV, meaning that we would consider the PP to be $396,000 and the resultant LTV to be just slightly over 70%. Since this wouldn't have any negative impact as to the loan structure, it shouldn't cause a problem. (The customer's PP would still be $400,000 and the loan amount would not need to be changed)

[Jenny Ng]

Quote from @Tim Miller:

Quote from @Jenny Ng:

Quote from @Michael Gussin:

So a sellers concession (capped at 9%) and a discount off price are different. A concession is where the seller will pay a portion of the closing costs for you, which is great and minimizes the amount of out of pocket funds required.

A discount off price just lowers the sale price, which means you will have a lower loan amount and monthly payment, but won't effect your funds out of pocket much.

Any other questions don't hesitate to reach out!

Thank you.  To further clarify my question based on that lender's email, I need to understand if my final purchase price with any discount or credit will bring me down to 360K.  I understand that the contract price is 400K but I won't purchase if I cannot get the full 36K concession + 4K flip tax to bring the price down to 360K.  

Where do you think the $36k is coming from? It's coming from you, as part of the $400K loan. The seller is simply saying that out of the $400 they will give you $36k back for closing cost.
The only way to get the "price" to $360K is to ask the seller to drop the sale price.
Now the 1% discount will make the sale price of this property $396k. You're loan is still going to be $400k

Yes, I absolutely understand that I have to take out the 400K loan. 

The way I’m understanding the lender’s email, the 1% flip tax (4K) is going to be counted towards the 36K concession. 

My closing costs, let’s say it is 10K plus the 4K flip tax. From the 36K concession, how will I get the remaining 22K? The seller writes me a check?

Again, I understand the contract will say 400K and I will take out a 400K loan. The seller agreed to 36K concession plus 4K flip tax. I’m just going to understand how I will get the 40K credit since my closing costs will not be anywhere near 40K. 

Thank you.