Seller Credit at Closing?

Question

Hello,

Has anyone had experience doing a fannie or freddie small balance loan and having the bank allow seller credit at closing for repairs?

I've negotiated about 3% of the purchase price as credit back at closing, however, some banks I've talked to are pushing back against that idea.

Any feedback would help!

Russell Brazil · Answer

The addendum to the contract for a repair subsidy should not mention repairs at all. It should simply state that X has been agreed upon as a seller subsidy.

Some loans may limit the amount of the subsidy, I have a property now that limits it to 2%. So then we are also adjusting the sales price down to create the same net to seller.

Mark Malevskis · Answer

Yes, I meant the program that Fannie and Freddie calls small - 1M-5M.

Thanks everyone for your comments, I truly appreciate it!

Mark

Upen Patel · Answer

@Mark Malevskis as @Brie Schmidt stated, seller credit can ONLY be used to cover closing costs.

If the property has issues that the seller is willing to pay to fix, then more then likely the underwriter is not going to approve the loan until the issues are fixed. Banks don't like to lend on properties that have issues. If these are not true issues/repairs, but rather a good negotiation on your part to get rehab funds, then that agreement should NOT be made part of the contract. That is an agreement between you and the seller, and the bank wants no part of it. Unfortunately for the seller, it would make it harder to claim it as a cost of the transaction.

You can resolve all this, but adjusting the purchase price down. You can workout the #s so that the realtors still get paid what they would have been for the full price.

I am bit confused with what you are stating. On one hand you are stating that its a small balance loan, and you have negotiated a 3% seller credit. On the other hand you are stating that the seller credit is $50K. At 3% that would be $1.67M transaction. That's not a small balance loan. Please clarify.

Lynn McGeein · Answer

Instead of a seller credit directly to you at closing, they might be more amenable to an escrow account set up by seller at closing for specific repairs, reimbursed to you or paid for when receipts are presented, with any unused balance after like 3 months to be sent directly to pay down the loan balance, not given to you.   And they'll probably require another appraisal that shows repairs were completed.

Joseph Gozlan · Answer

@Mark Malevskis I would talk to your commercial mortgage broker. Fannie/Freddy has regulations that are hard to bend and if you plan on using those you would want to make sure you don't write a contract that will render your deal unattractive to the agencies.

Local banks on the other hand can be a little more flexible. Some might have a $ cap on that amount, some will have % based cap and some will have no cap. With the banks it'll depend on your negotiations skills and bank policies (the smaller the bank the easier should will be)

Bonnie Staples · Answer

Hi Mark,

A consideration is that the seller pays a commission on the purchase price and many of your closing cost are base on the same - so be sure to compare which way is your best option.

I hope you find this as helpful!!

Bonnie

Mark Malevskis · Answer

Thank you for the tip.

Credit is $50K could probably apply about $10K of that to closing costs.

Brie Schmidt · Answer

@Mark Malevskis - I haven't done it with a small balance loan, but my clients do it all the time.

You can ask for 3% of the purchase price BUT it must go 100% towards closing costs.  So if you are buying a house for $500k and get a credit of $15k  but the closing costs are $12k then you just get the $12k

My lender let's us go up to about $12k even if they are not at the full 3%