My First Mistake: Large Seller Credit, or A Really Big Headache?

Seller Credit for this?? Before and After of a room in the house in this story

Hi everyone, 

This will be the first post in a series about all the stupid mistakes I made in real estate, and there were quite a few. But, if you are considering investing for the first time, don't be discouraged by these stories because A. you can hopefully learn what not to do, and B. because I'm still here doing deals, and I'm still standing (yeah, yeah, yeah), even after all the dumb things that I'm going to tell you about.

Let's get to it. What is seller credit (I'm not a lawyer, mortgage professional or anything else, this is just my understanding of the term)? A seller credit is an amount of money that the seller of a property agrees to "pay the buyer back" towards closing and other costs. So I can offer let's say $200K on a house but ask for $1000 towards closing costs. So, at the time of closing, the $1000 will be taken from what the seller is getting and will be used to credit me and as a result, my closing costs will decrease by $1000.

So there's this 4 family that I found, in pretty bad shape, needs work. I make an offer, the offer is accepted, I bring inspection that finds a serious problem in the basement. I negotiate the price down $30k. Nice, right? Only that I ask for $20k reduction of the price and $10k as credit towards closing. We sign the P&S, and I feel like the king of the world, that is until I get a call from my mortgage broker a couple of days later, telling me that the credit is way higher than the lender's limits. Huh??? What was that again? Yeah, lenders put limits on how much they allow for seller credit. I won't get into numbers because the amount varies between landers, but in my case, I was about to lose around $5000. This amount was about to go back to the seller since the lander was not allowing it to be used by me. I was lucky to have an extremely experienced lawyer, and he was able to figure it out and find a solution to almost all the money, with the exception of something like $20 that went back to the seller.

The lessons I learned from this story are that first of all, even if you think that you know something well, It's always good to ask an expert before making a decision, and also, more specifically, if a deal changes substantially, make sure you inform all the people involved before committing.

Peace!

Ariel