Unable to understand…please explain

New York, New York
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Unable to understand…please explain

Jenny Ng
Member since 2023 · 9 posts · 1 vote

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)

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Michael Gussin
Lender · NY · Member since 2023 · 22 posts · 11 votes
3y

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!

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  • Michael Gussin
    Lender · NY · Member since 2023 · 22 posts · 11 votes
    3y

    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!

    1Reply
  • Jenny Ng
    OP
    Member since 2023 · 9 posts · 1 vote
    3y
    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.  

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  • Michael Gussin
    Lender · NY · Member since 2023 · 22 posts · 11 votes
    3y

    It looks to me like the price reduction of 4k will come off the top (400k to 396k) and then the other 36k will be in a concession 

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  • Jenny Ng
    OP
    Member since 2023 · 9 posts · 1 vote
    3y
    Quote from @Michael Gussin:

    It looks to me like the price reduction of 4k will come off the top (400k to 396k) and then the other 36k will be in a concession 


     Thank you for your response.  We scheduled a call with our lender in a couple of days to get further clarification.  

    0Reply
  • Michael Gussin
    Lender · NY · Member since 2023 · 22 posts · 11 votes
    3y

    sounds good have a great weekend, I'm here if ya need me!

    0Reply
  • Tim Miller
    Rental Property Investor · Laurel, MD · Member since 2016 · 383 posts · 382 votes
    3y
    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
    0Reply
  • Jenny Ng
    OP
    Member since 2023 · 9 posts · 1 vote
    3y
    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. 


    1Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @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. 


     You should create disclosure form, with your RE Agent.

    Then when you are near the finish line, check again with the lender/TC to account for *everything* that you listed above in the form of Estimated Closing, check for accuracy, I always 80% of time found mistake in their number.

    There's no such thing as "walk away" BUT you have to document everything in written in form of disclosure, signed by both parties, that both TC/Escrow and lender has to understand. 

    The "walk away thing" is totally unnecessary if you know what you are doing, your agent should teach you all of these.

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  • Mohammed Rahman
    Real Estate Broker · New York, NY · Member since 2020 · 2k+ posts · 1k+ votes
    3y

    Hi @Jenny Ng - feel free to text me if there are questions on this, seems like the $36k is going towards your closings costs, while the $4k is discounted off the purchase price. 

    I'm a bit unsure about what you're explicitly asking, but maybe I'm misunderstanding your block of text. 

    Call or text and I'm happy to shed some light on it too. 

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