A young couple decided to buy their first home. They pick out a really cute house. I write up the contract and the contract is accepted. The lender starts working on the loan.
A few weeks later the lender calls me and says it would be best for this couple if they could roll in $7000 of their closing costs into the price of the home. Just to help understand this. The contract amount is $175,000. The buyer needs $7000 cash to buy the house. So we took the $7000 and added it to $175,000 bringing the new contract price to $182,000. The seller then issues a credit at closing for the $7000 to the buyer. The buyer uses this money to pay their closing costs instead of having to have the cash in hand. However, their loan is now $182,000 so they in essence finance that additional $7000 for the term of the loan. The house also has to appraise for the $182,000.
The seller agrees to the changes and contract changes are made to reflect the new sales price and the $7000 back to the buyer. Everything seems to be going smoothly until we get to closing.
At closing the paperwork comes out and I start looking at it. The settlement statement (HUD-1) shows the buyers closing cost came to $6300 and not $7000. I inform the buyers that we have a problem. The way the paperwork is they will be giving the seller an additional $700 for the house because they can not get money back at closing. There are three options: 1.) delay closing so the lender can redo the loan amount to $181,300 2.) have the seller refund the money after closing 3.) see if the lender will let them have the $700 cash back at closing 4) let the seller keep the extra $700.
Well scenario one didn’t work because the buyers had already ended their apartment lease and couldn’t stay without having to pay another months rent. And the third option the lender wouldn’t allow them to do and the forth option was not desirable. But the problem with scenario two was there was nothing that obligated the seller to give back this money. I inform them of this. But they don’t have much choice so they close on the house.
I then spend the next THREE MONTHS working on trying to get this money back from the seller. I email, mail, and call him. Finally, the seller agrees to refund the money and they did get it back.
With the end of 100% financing hopefully that will be the end of that problem. I saw that same problem while representing other sellers and buyers. Lenders often do an estimated guess on the closing costs. And sometimes they are wrong. If you really don’t have the cash just realize you may be paying more for the house then you planned.
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