seller contribution limitations on conventional? (insurance, loan, interest rate, real estate)

[foxywench]

is this common?!

when i started looking at buying a place i decided to go with Wells Fargo, i bank with them and unlike many places they had no problem loaning on a tiny amount (my loan will be about $28,000)
i looked into FHA financing first..the big turn off was that fha limits seller contribution to closing costs to 3.5% given that the downpayment didnt have to be large i had no problem with this...
but the fha req on houses was tough....

then w whent to convention because obviously other than appraisal the requirments fo rhome condition arnt as strict...so i talked to the broker, explained that id like to try and get seller to pay all closing costs...to which i was told...no problem.

everything goes ahead, aproved, offer accepted time to finalize paperwork and im suddenly told "we dont allow any more than 3% seller contribution to closing costs" i told her "but im going for conventional not fha thinking mabe there was a mistake...
"no, im sorry wells fargo wont allow ANY loan to have more than 3% in seller closing contribution..."

i told her i was told differently and that she can go put it somewhere where it would be quite uncomfortable.

i talked to my agent and she put me intouch with a local lender who is working with me now to try and get this done through the usda rural housing loan program and aparently these folks dont care who pays closing as long as it gets paid so, as was already agreed on with the seller, seller will be paying almost all closing costs (my out of pocket will be about $200 for closing plus the downpayment obviously)

when i told this broker about wells fargos restrictions he seemed incredibly confused said hed NEVER herd of a limit on seller contribution on conventional loans...

has anyone else ever delt with the bank limiting seller contribution?

side note: im on a fixed income with no ongoing debts and a credit score of 819 and was origionally approved for double what im actually trying to buy for...

i can see banks wanting buyer to pay for all the downpayment and such, but i dont see why the closing costs should matter as long as they get paid!?

as i said, luckily the local broker seems to have a good handle on this and were moving forward and should close by the 7th as long as the appraisal comes back good...but wells fargo policy just struck me kind of odd....

[FalconheadWest]

Several lenders now limit the seller contributions. They want buyers to have skin in the game, and if they continue to borrow money and have none of their own, the market is going to go in circles and not get better.

[foxywench]

i understand having "skin in the game" as you put it, thats why im putting a larger amount down...but id rather put MY money INTO the loan itself to make a larger contributon to how much i will be owing...rather than taking money away form the actual loan to pay their fees...
especially when the seller is more than happy to pay those fees for me so i can put that larger amount down.

i do see the problem with people borrowing without having enough, but thats the banks issue for lending to them when they dont have the funds to support it...
infact borrowing more than one can afford is a HUGE pet peeve of mine...so i do get that part...
but i think maximizing a downpayment would be a much better choice than limiting a buyer because of closing costs involved.

many buyers if they know the seller can only contrbute 3% to closing but have been aproved for a higher amount seem to me to be more likely to put in LESS of a down payment to make up for the difference...and id think that would be the opposite of what a bank would realy want.

[SmartMoney]

I'm sorry, but you are being given some incorrect information or you have misunderstood what you have been told. One fact left out is your down payment.

On an FHA loan, you are required to have 3.5% down, but the seller is permitted to pay up to 6% of your closing costs. Seeing your small loan amount and sales price, 6% may not cover a whole lot of ground. The following is directly from the FHA 4155 (Lenders Underwriting Handbook):

FHA requires that lenders comply with the requirements listed below with respect to sales concessions:

• on any real estate purchase transaction, the lender must provide the appraiser with a complete copy of the ratified sales contract, including all addenda, for the subject property that is to be appraised
• lenders must provide appraisers with all financing data and sales concessions for the subject property granted by anyone associated with the transaction (Note: Sales concession information must include gifts and/or down payment assistance, which may or may not be included in the sales contract.), and
• if a lender requests a reconsideration of value, the lender must provide the appraiser with any amendments to the contract that occurred after the effective date of the appraisal.

Note: Contributions from sellers or other interested third parties to the transaction that exceed 6% of the sales price or other financing concessions must be treated as inducements to purchase, thereby reducing the amount of the mortgage.

---------------------------------------
On conventional loans, the seller paid closing costs are called "IPCs" or Interested Party Contributions. The maximum IPC is tied to the loan to value, or if you will, your down payment.

over 90% LTV = max 3% seller assistance
75% to 90% = 6% max seller assistance
75% or less = 9% seller concession

The above are Fannie Mae - it's my understanding Freddie is the same, but I haven't worked with Freddie in years, so I cannot verify, but suspect they are the same, as they have been for years.

As for the FHA appraisals being more strenuous, my personal opinion is there's way too much exaggeration on that issue, but maybe the appraisers will be along to comment. I've had several recent situations where we have taken a conventional appraisal and reordered an FHA, only to have the identical results. The disparity use to be true, but a memo in 2005 changed FHA requirements.

I will suggest your loan amount is not helping with the seller paid closing costs. 1% is $280. With so many of the costs fixed, it doesn't really cover much of the fees required.

[foxywench]

im not doing fha or fanne mae or freddie mac though...i understood all 3 of those types, along with homepath have limitations on seller contribution.

my current broker says there will be aboslutly no problem with the almost 10% for closing costs (selling price is 27,600 im putting 15% down and seller is contributing $2600 to closing costs.
or are you now saying im going to run in this issue again when this goes to finalization!?
caus eif so im going to have to beet someone with a stick.

again this is a conventioanl loan.

[kinkytoes]

Honestly, Foxy. The broker should have known unless he/she is new... I didn't want to say this in the other forum, but since you're asking... The first place I bought, I listened to my realtor who recommended a mortgage broker. I ended up paying unnecessary fees and a higher interest rate. I would not do that again. For my recently bought house, I used a credit union.

In your case, I bought my new house 2 years ago and got a seller contribution, but my realtor told me up front that there's a limit because of the non-FHA. Based on what I know ALL conventional loans allow a lower seller contribution than FHA. He asked me while we were coming up with the offer.

If you are dead-set on having the hosue and there is a lot of competition...do nothing. OTherwise, if other prices are going down etc I would consider
1. Asking the Seller to Lower the price by the amount of the contribution. The realtor should take care of that. Let them know the financing "fell through" and see if they can lower the price by X.
2. Review the truth in lending etc from the broker and make sure you're not paying extra fees or higher interest.

Again, the limit on seller contribution is not something unknown, and my realtor asked me what kind of loan I had before we made the offer.

You should not pay more interest or fees (unless there's not choice) because if his/her mistake. Unless the house is one of a kind, but even then I would try to push. You could save some money if you can do it and still get the house you want.

[foxywench]

well right now my broker is certain the seller can put my ull asked contribution in of $2600, its ON the GFE and my interest rate is lower than wells fargo was offering me by over 1%.

i guess now all i can do is wait for the underwriter...id assume if its in the GFE and this underwriter says sorry no can do id at least have a leg to stand on to get the fee i had to pay for the appraisal which i WOULDNT have paid (because i wouldnt be buying the house) if it wernt for the seller closing cost contribution because its not like they can say i didnt tell them before it got to this point.

i want the house...
i want it enough to offer what i did...
i want it enough to not have just dropped the matter when wellsfargo gave me the bad news...

but i flat out do NOT have the cash on hand and cannot GET cash on hand for extra closing costs...they either get a downpayment OR they get the closing costs, theres not enough money to do both.

i have more than enough money to pay the mortgage, insurnace and bills comming in monthly...but theres a reaosn im moving..
right now i rent from my parents a 400sqft apt 9used to be their garage) for almost $600 a month not including utilities...i pay everything myself from my cable and telephone ot my car insurance, i even have renters insurance...
but they wont let me live here for free, its much less than it would be to live anywhere else in ct (and i cant find rent for $200 a month even in TN lol.) but given my current rent an expenses it will take me 2 years at my current income with current expenses (which are going up) to save up the extra $$'s for closing if that should happen.

so its either these guys figure it out (again $2600 seller to closing IS on the GFE) or im living in my parents garage for another 2+ years hoping to scrounge enough together to get the heck out of Connecticut.

fingers crossed it doesnt come to that.

[kinkytoes]

OK Best of luck, Foxy!

[foxywench]

thanks, i actulaly called my mortgage guy today cause it was worrying me and he assures me, hes been in the buisness for over 30 years, hes done over "alot" of USDA rural loans and his only worry right now is making sure the house apraises for at or above offer price. and that closing "wont be a problem"

so im seroulsy crossing the fingers and toes lol.

this whole process has been less than clear and i think im mor eupset that my broker origionally with wells fargo KNEW i planned to have seller pay closing and never once brought up that it might cause an issue...infact flat out said "thats no problem there are planty of ways to roll all the closing costs into the loan..." and as a first time buyer i belived that.

then according to the 3 different people i talked to for finalization, wells fargo allow on ANY loans other than FHA and the fanniemae/mak loans a MAX of 3.5% seller contribution to closing, doesnt matter if your putting 5% down or 95% down, max seller contribution is 3.5% so even if i had a 90% LtV, they will still only allow 3.5% seler contribution.

oh well...they lost my loan because of it...and im sure there are plenty of others out there that feel the same.
in the grand scheme of things while my loan is sooo tiny ti wouldnt make a dent in thier profit margines..as long as my current broker isnt running me up a tree, it worked out better because im saving actualy more than a full 1% (wells fargo wanted 5.75% this loan is currently locked in at 4.5%) on the rate so assuming they can pull this off for me...it worked out in my favor!

[Lakahan]

Is there any website showing the list of fees considered while calculating the seller contribution, I have doubt if the owner's title policy is considered while calculating this 1% seller contributions.