Question about FHA Loan Guidelines?

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I’m getting a FHA loan. As a condition of me buying the house the seller says they will credit me $ 2,000. According to the loan guy, under FHA guidelines the seller can’t just cut me a check for the amount. It would either have to come into play by reducing the loan amount by $ 2000 and thus lowering my monthly obligation or giving the $ 2,000 to the mortgage company and they can lower the interest rate to make my monthly obligation lower.

Can anyone confirm this?
One thing to add:

Seller is already paying closing costs.

  1. Reply
    Cesaria Barbarossa
    May 18, 2011 at 12:45 pm

    Sounds like seller’s concessions. Where the seller agrees to pay up to 6% of closing costs. From what I understand, if they do offer to offer concessions, they will write that amount into the purchase agreement so actually your mortgage loan amount will be more on paper. So, if the house is 100K and they offer 5% concessions, they will pay 5,000 of your closing costs. You will still be responsible for the 3.5% or 3,500. Total closing costs are 8,500. So, when you sign the papers, the loan amount will actually say $ 108,500, but that extra five will be taken off the closing costs, minus your down payment which puts you back down to your original agreement of 100K.

    If that’s not what’s going on, perhaps they are just lowering the asking price by 2K.

    But you are right, they are not allowed to give you cash as concessions. Concessions are to help you pay closing costs or even pay down points for you so you can have a lower interest rate.

    This all should be negotiated by a real estate agent who is very knowledgable with concessions.

  2. Reply
    May 18, 2011 at 1:34 pm

    They can not just give you a check for $ 2,000. That type of credit (carpet allowance, repair credit, etc.) says to the bank that the house is worth $ 2,000 less than what you are paying for it, so they won’t allow it on the paperwork. Most realtors/attorneys will write this up “under the table” so it is not on any paperwork the bank sees. It is not legal to do this, so don’t take that as my recommendation on what to do.
    You can get a $ 2,000 closing cost credit from the seller which will reduce the amount of money you bring to closing which is the same as getting a check at closing. This is legal, and this would be my recommendation. Your loan officer should have explained this better.

  3. Reply
    May 18, 2011 at 2:00 pm

    If the seller is already giving you a credit towards closing costs, then that’s all they can give you.

    Anything given under or over the table and not accounted for on the closing documents is considered mortgage fraud.

    Proceed with caution.

    Good luck.

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