Seller Paid Closing Costs

[0errant]

I'm having a hard time understanding closing costs now that we've had to switch to a conventional loan. Seller agreed to pay up $5500 in closing costs, $2500 termite fee, and $750 for NHD, CO Tranx Tax, Sect. 1. Looking at my loan summary, non of those costs are being attributed to the seller, which brings my total due at closing up much higher than I anticipated.

I spoke with the LO, and he said the numbers on the paperwork aren't set in stone, yet, and that of course he would charge those things to the seller. But then he said conventional loans have a 3% limit on closing costs paid by seller. That would only be $3450... much less than they agreed to pay. Is this correct?

[0errant]

Has anyone heard of this 3% limit on seller paid closing costs? And which costs are actually considered closing costs? Is the termite inspection considered a closing cost? Or will that not apply to the 3% limit?

[Heavanly1]

I've only heard of FHA limiting the percentage the seller can contribute to closing cost; I've never heard of a conventional lender doing the same. You may want to speak to your LO about whether the limitation is an industry standard or specific to that bank.

In reference to closing cost, a termite inspection is usually an additional component of the home inspection (at an additional charge), which is not considered a closing cost. However, caps on how much the seller can contribute towards the sale of the home are just that, caps. Regardless of how you choose to use the seller subsidy makes no difference (so in short, yes the termite inspection would count towards the 3%).

[cdtotten]

Conventional loans limit seller concessions to 3% of sales price. FHA limits used to be 6%, but I thought I heard they were dropping to 3% as well very soon.

If it is written in the contract that they will contribute a certain amount/%, and it does not comply with underwriting guidelines, the mortgage broker will only allow up to the max and disregard the rest. That's just the way it goes.

[0errant]

Well, phooey! This is going to put me out of pocket much more than I was expecting

[ShanetheMortgageMan]

Why did you have to switch to conventional?

[0errant]

Because I have an existing FHA on my first home.

[ShanetheMortgageMan]

Ah, are you buying in the same area as your current home?  There are a few exceptions to be able to have 2 FHA homes.  Can you refinance your current home as non-owner occupied conventional, so you can use FHA again?  May require delaying the closing on the new home by a week or two, but the refinance can be done simultaneously.

[0errant]

Same area as current home. Current home has less than 20K owed, so I don't think refinancing it as this point would make sense.

[ShanetheMortgageMan]

Oh I think I responded to your other thread, "2 FHA's".  If you have accepted using conventional then it's been put to rest, but there are those two options I laid out.