Mortgage Loans

[steelbruin]

Hi - Have been pre-approved for FHA Loan of $300,000 with 3.5% down.

Would like to limit our out of pocket closing costs as need to buy some appliances,etc and do not want to take loan on my 401K.

I was told that we can get either Lender's credit or seller concession to cover closing costs.

What is difference between the the 2, costs associated with each and also how to go about having them. Do they need to be in contract for the house?

FYI- There are now real estate agents involved.  

Any help greatly appreciated.

[DallasLoanGuy]

Seller concessions:

You find a home for $300,000 and negotiate down to $294,000..... Or pay the full $300,000 and the seller pays $6,000 of your closing costs. Either way the seller gets $294,000. Realtor just writes up the contract this way.

Lender credit:

You wualify for 3.5% rate. Lender raises your rate to 3.75% and offers you a credit towards closing costs. The amount they credit depends on the 'yield spread' between those two rates. Sometimes it is a lot and sometimes not so much.

Your lender can quote you both ways on the lender credit so you can decide which os best for you.

Remember!!!

If the seller pays? You are(in effect) financing closing costs over the life of the loan)

If the lender credits? You might end up paying MORE in higher interest over time than the actual costs out of pocket. The lender can show you the break even point for that.

[cim]

Seller concessions could be a better deal. The reason is that you can always pre-pay extra to make up for the rolled-in concessions down the road. There's no guarantee that you'll be able to refinance into a lower rate down the road.

[Amythyst]

Also, if you're a member of USAA or a credit union... see if they have real estate services... We are using Navy Federal's real estate program and we get about 2k back after closing just for using a realtor through them.  I know you said real estate agents are involved... so, not sure if you can switch at this point.

We are also getting lender credit but at no cost to the interest rate.  We are having a home built and we are using the preferred lender for the builder.  When doing this, the lender gives 2,500 in closing cost assistance and we actually got the builder to give us 6,500 in closing costs.  So, pretty much all our closing costs are taken care of.

[JM-AM]

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Amythyst wrote:

Also, if you're a member of USAA or a credit union... see if they have real estate services... We are using Navy Federal's real estate program and we get about 2k back after closing just for using a realtor through them.  I know you said real estate agents are involved... so, not sure if you can switch at this point.

We are also getting lender credit but at no cost to the interest rate.  We are having a home built and we are using the preferred lender for the builder.  When doing this, the lender gives 2,500 in closing cost assistance and we actually got the builder to give us 6,500 in closing costs.  So, pretty much all our closing costs are taken care of.

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While they may be telling you there is no cost to you, since Regulations do not require them to disclose, I can for sure tell you 100% you are paying one way or the other.

But none of it matters, if you as the client (customer) are happy with what they offer and services performed.

[whipster]

Very clear explanation Dallas, thank you.