So I have another question. I have 100% financing for a mortgage loan that I was approved for and…?

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In my approval letter it states that the seller will pay all closing costs and prepaids. So the money the seller pays will that come off of the amount I finance or be added to the amount financed. Example: 100,000 closing cost/prepaids 5000 would that be 95,000 financed or 105,000. I’m a first time buyer and really confused. Help ME Please.

  1. Reply
    April 29, 2011 at 10:53 pm

    it will be less not more. so if your loan was 100,000 and closing cost are 10k you mortgage will be for 90k

  2. Reply
    April 29, 2011 at 11:11 pm

    Be careful. something is fishy. Get a good lawyer and find out what this is all about. As a first time buyer, you are eligible to apply for a sellers discount.. Your lawyer should be able to help you with all of these.

  3. Reply
    April 29, 2011 at 11:26 pm

    If the approval letter states the seller will pay the closing costs, it means you were approved with the condition that the seller will pay closing costs. Make sure you let your realtor know of this condition. This will have to be negotiated in the purchase agreement.
    As for the financing, it means, if the house is 100,000 and closing costs are 5000, you would finance 100,000 and the seller will pay closing costs of 5000. Then the seller will only get 95000 for their house. Or if the house will appraise high enough, the seller might make you the offer of raising his asking price to 105,000 to cover the 5000 he has to give you. That way he still gets the 100,000 he wanted, not 95,000. But then your loan ends up being 105,000.
    So what I’m saying is, it depends on your purchase price and the offer you make the seller. Please make sure you discuss this with your realtor.

  4. Reply
    April 29, 2011 at 11:49 pm

    The seller’s contribution will be applied to your closing costs, not against the amount you finance. You have costs like appraisal, title, escrow, recording cots, etc. The contribution from the seller will pay these for you at closing.

    Using your example, your loan amount will be the sales price of $ 100,000 and you Wall bring no funds to closing to pay the $ 5000 in costs.

  5. Reply
    Amanda H
    April 30, 2011 at 12:10 am

    Okay, make sure you understand what you’re saying!! If you are approved for 100K, your total loan can ONLY BE 100K.

    A bank can’t tell the seller to pay your costs. Only you can do this as part of the offer/negotiation stage.

    Say a seller has a house for 100K up for sale. If you think your closing costs are going to be 5,000, but you want to try and get a better deal on the house, you offer them 100,000 “with a 5,000 credit for buyer’s closing costs”.

    If the seller excepts, this means they are essentially accepting an offer for 5,000 under asking price. Your loan is for 100,000 and yet the seller only nets $ 95,000.

    If you want to offer the seller full price (like if you think other people are putting in offers) but you still need your costs paid, you offer $ 105,000, “with a buyer’s credit of $ 5,000 for closing costs.” This would only work if you are approved to $ 105K!

    Even though it looks like the seller is paying your costs, you’re essentially paying htem yourself, becuase if the seller would pay $ 5k towards your closing costs that means they’d accept $ 5K less without paying your costs…..know what I mean?

    Also, you DO have to include a dollar amount…so if you get to closing and your closing costs are $ 5,500, that means you will have to bring the $ 500 balance to closing.

  6. Reply
    April 30, 2011 at 12:13 am

    Closing costs are the costs associated with originating, processing and closing your loan. They include fees paid to the mortgage broker/bank, the lender, the title company, and any taxes/insurance/interest that are required to be paid up front. If you were paying the closing costs, they would not be rolled into your mortgage, since you are already at 100%. You would likely have to pay them out-of-pocket before you could close. The money the seller pays for closing costs and prepaids will not affect your loan amount at all (you’re very lucky, most sellers aren’t willing to pay all costs). Do pay attention to the fact that most lenders will only allow a seller to pay closing costs up to 6% of the loan amount, (that would be $ 6000 on a $ 100,000 loan), so be sure your mortgage broker or bank isn’t charging you outrageous amounts, i.e., origination fee, administrative fee, processing fee. (The closing costs also include any judgements or collections that the lender requires you pay before closing.) The origination fee should not be more than 2 points (2%), unless you have bad credit. An administrative fee is an add-on fee that really is just additional revenue for the mortgage broker. If your broker/bank is charging you a processing fee, your lender should not, and vice-versa. Make sure you’re not paying for that twice. Also, check to see if your broker/bank is receiving a yield-spread rebate (it will probably be in VERY small print with the initials ysp on your closing documents). This is money they get back from the lender in exchange for a slightly higher interest rate to you. You have a right to deny the yield-spread or ask that it be paid to you. One other thing, given the current mortgage situation, I would be very careful with a 100% loan. The market is not good and it looks like we’re in for a correction. This means that the value of your property could actually go down slightly in the near future, meaning you would owe more than your home is worth. This is not a good situation to get into.

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