Down Payment (loan officer, escrow, approved, credit score)

[gc333]

Is the down payment included with all the closing cost that are paid at closing?

[VictorBurek]

No, downpayment and closing costs are 2 seperate items. You can structure a purchase loan where the seller pays the closing costs of the buyer but the buyer is responsible for bringing the down payment.

[michael11747]

or you can work out a deal with the seller to increase the loan amt to cover the down payment, but not advisable.

[rcarrillo]

Originally Posted by michael11747

or you can work out a deal with the seller to increase the loan amt to cover the down payment, but not advisable.

Not really.... down payment in every conforming and government program can not come from the seller or any other interested party.

It needs to come from the borrowers own funds (sourced for last 60 days), a gift from family members (again, properly sourced), non-profit organization, government bond program, etc. But the seller, builder, Realtor, lender or anyone else involved in the sale or financing of the home can not cover the down payment.

[michael11747]

i've seen it done, i don't know if it is legal, but the realtor and the banker were both in on it, and it seemed like common practice. what am i talking about? i am pretty sure there is a legal and common way to do this, and a name for it as well. it is like a reverse point system.

[rcarrillo]

Originally Posted by michael11747

i've seen it done, i don't know if it is legal, but the realtor and the banker were both in on it, and it seemed like common practice. what am i talking about? i am pretty sure there is a legal and common way to do this, and a name for it as well. it is like a reverse point system.

Well, there was a seller-funded down payment assistance program on FHA. The program was eliminated back in October however. The reason is that HUD studies showed that loans where the program was used were delinquent 2x as often. The studies are highly debated and there have been attempts to bring it back, but for now its dead.

Reverse points and seller concessions CAN be used towards closing costs and pre-paids. Up to 6% of the purchase price on FHA loans and 3% on high LTV conforming loans. So a borrower can buy a home with the seller, Realtor, builder, lender, etc paying all their closing costs and pre-paids as long as its within that concession % limit.

The down payment can not come from an interested party in the transaction.

[SmartMoney]

I am wondering by chance if gc333 is perhaps looking at a Good Faith Estimate and trying to figure out if the down payment is in the total needed to close.

To answer your question, we need to know what you are looking at. Are you asking in general? Are you under contract? Do you have any kind of estimate?

It's possible the seller is paying the closing and all you need is a down payment. Not to offend, but your question is kind of like asking, "do we qualify for this loan?" without giving any other information. Not enough info to process.

[michael11747]

Originally Posted by rcarrillo

Well, there was a seller-funded down payment assistance program on FHA. The program was eliminated back in October however. The reason is that HUD studies showed that loans where the program was used were delinquent 2x as often. The studies are highly debated and there have been attempts to bring it back, but for now its dead.

Reverse points and seller concessions CAN be used towards closing costs and pre-paids. Up to 6% of the purchase price on FHA loans and 3% on high LTV conforming loans. So a borrower can buy a home with the seller, Realtor, builder, lender, etc paying all their closing costs and pre-paids as long as its within that concession % limit.

The down payment can not come from an interested party in the transaction.

ah i see... yes i have heard of both, but i never heard that it was eliminated, thanks for the heads up. that's interesting that they were delinquent 2x as often. i think i could have predicted that though. makes sense. someone who never saved the money for an FHA down payment probably doesn't know how to handle money very well.

well let's go back to the interested party thing. i distinctly remember a conversation i had with my realtor (whom i do not use anymore) about how i can use as little of my own money to use as a down payment, and she suggested that i ask the seller's agent to see if the seller would inflate the price of a property so the loan could cover the down payment and closing costs. would this be illegal? the idea of inflating the cost of anything i just fought and bargained for seemed idiotic to me, so i didn't buy it, but it's another thing if i could have been sued over it. maybe i mis-heard her and thought she said down payment and closing costs when she meant just closing costs? oh well.

[gc333]

yea smartmoney that is exactly what i meant, in general will the down payment be included in the cash needed to close? the down payment is given at the closing table?

[rcarrillo]

Originally Posted by michael11747

ah i see... yes i have heard of both, but i never heard that it was eliminated, thanks for the heads up. that's interesting that they were delinquent 2x as often. i think i could have predicted that though. makes sense. someone who never saved the money for an FHA down payment probably doesn't know how to handle money very well.

Yeah, basically people were getting 100% financing as if they were doing 97%. USDA and VA allow 100% financing and are pretty safe, so I see nothing wrong with FHA doing 100% as well. The problem is the program was a loophole so people were "qualified" based on risk assumptions of 3% down and in reality it was not.

I think a better solution was to increase the qualifying factors (credit score, income, assets) to get approved for 100% FHA and allow people to buy under the current rules if they put say 5% down. The transactions would then by out in the light and everyone would be able properly gauge risk.

There is nothing wrong at the core with having a limited amount of 100% financing programs. But they should be very limited and conservative.

Originally Posted by michael11747

well let's go back to the interested party thing. i distinctly remember a conversation i had with my realtor (whom i do not use anymore) about how i can use as little of my own money to use as a down payment, and she suggested that i ask the seller's agent to see if the seller would inflate the price of a property so the loan could cover the down payment and closing costs. would this be illegal? the idea of inflating the cost of anything i just fought and bargained for seemed idiotic to me, so i didn't buy it, but it's another thing if i could have been sued over it. maybe i mis-heard her and thought she said down payment and closing costs when she meant just closing costs? oh well.

This is exactly the program I was talking about. The seller would pay the 3% down payment for the borrower. It was not illegal, but it exploited a loophole in the FHA guidelines.

FHA has always allowed family members, non-profits and government bond programs to provide the 3% down. A family member or community organization can provide a gift letter and the 3% to the buyer, and they use it to purchase.

In this loophole, the "non-profit" would give the buyer the 3% down a day or two prior to closing. Amazing though, at closing the owner/builder would give the same exact amount of money + $500 processing fee to the non-profit. So the "non-profit" would replensish their funds and make $500.

They claimed it was not the builder/owner giving the money directly to the buyer which was ILLEGAL. Their story was the money came from a "pre-existing pool of money" and then at closing the seller was "participating" in the program for future homeowners by giving 3% of the sales price of their home + $500 to the organization. The fact that the money cancelled out and that the owner only gave the money because the sale occurred was a coincidence I guess.

The problem as I said was that FHA was approving these as if the 3% came from a family member or true community organziation. In those cases it was okay becaus buyers were being qualified at 97% LTV and it truly was... just happens that the 3% didn't always come from the buyers.

In these seller financed programs, many sellers were not going to give 3% + $500 + closing costs to the buyer. Some were, but many others just inflated the price by 3% to balance out their net at closing. Of course, this caused motivation to jack up appraisal prices. Not everyone played ball, but many Realtors and loan officers would pressure each other and appraisers to make this work.

The FHA was left giving >100% financing on a home while qualifying it as if it was 97% financing. A lot of this also happened on new construction where the builder would jack up prices to cover the 3% down, closing costs and "incentives" they were offering that month. Their in-house lender, title company and appraiser of course always approved the value.... and off we went.

Once you have the first few, the next few come in higher, and the next few even higher, etc. Soon prices have been inflated up 10% over what they should be and buyers are jumping in because the builder is offering great no money down homes. A few companies (notably Beazer here in NC) were found to have improperly used the program.

Originally Posted by gc333

yea smartmoney that is exactly what i meant, in general will the down payment be included in the cash needed to close? the down payment is given at the closing table?

It should be. If you have a good faith estimate, on the bottom it should show you the "total estimated funds needed at settlement". This should be a combination of your down payment, closing costs and escrows.

At closing you will need to bring the total amount minus anything you paid prior to closing. This is things like your earnest money deposit on the sales contract and if you paid the appraiser or inspector directly.