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What can a person do with a Realtor Commission Credit? My cousin found a house, arranged financing and determined an asking price. Instead of doing a FSBO deal, he hired a realtor at a reduced rate.
The realtor is giving him a "Realtor Commission Closing Credit" instead of a rebate; for tax reasons.
He wants to use the credit to buy down his rate a 1/4 point and apply the rest to prepaid HOA fees.
The transaction involves a house in the OC, in CA.
Is there any issue with him doing that?
His real estate broker believes there is, but I disagree.
Would not be a problem in AZ if his lender agrees. Hopefully a CA Realtor will respond. From my perspective, it's still a rebate applied as a closing credit.
It should be just a credit adjustment on his HUD1 closing statement that reduces his closing costs. He can raise his closing costs by buying down his rate.
One is seperate from the other, it just means he will bring more or less money to cover his closing costs at closing or get less back if he is owed money.
If he is getting a loan, the lender may have a problem with that. Usually a realtor credit is given to a buyer AFTER closing. If the buyer intends to use some of the money toward closing costs, the lender has to know about it, and on some loan types will not allow it.
Location: Mokelumne Hill, CA & El Pescadero, BCS MX.
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It's a little confusing the way you described it, but I'm seeing your cousin paying a buyers broker fee to an agent and the agent offering a credit against his expenses on the HUD-1.
The HUD-1 doesn't let you apply money for a specific item, but rather credits and debits the entire transaction leaving the buyer with a net to pay to close the transaction. I've been able to credit both buyers and sellers in escrow on the HUD-1 but there are some specific rules about what can be done and what can't be done depending on the loan program used and individual lenders underwriting requirements.
If he is getting a loan, the lender may have a problem with that. Usually a realtor credit is given to a buyer AFTER closing. If the buyer intends to use some of the money toward closing costs, the lender has to know about it, and on some loan types will not allow it.
This I believe would be illegal. It should always be reflected on his closing statement as a credit.
Thanks for all the great feedback, keep it coming.
So, you are saying that the lender may not allow my cousin to apply the credit to the closing costs, because then my cousin is getting a down payment "Gift" from the realtor and the lender wants to make sure my cousin brings to the table, the full amount?
I think that is why my cousin is trying to INCREASE his closing costs, by prepaying the HOA fees. This way he will bring the full 20% down payment to the table to appease the lender, and not have any left over money that he will have to pay taxes on.
Does this make sense? Is there a better way to do it?
This I believe would be illegal. It should always be reflected on his closing statement as a credit.
In Idaho, it is 100% legal. A licenced agent can gift any part of their commission back to the buyer or seller in the transaction, and it is usually done after the transaction.
As long as the credit isn't going towards down payment and it's only going towards closing costs, there shouldn't be an issue... except your loan might say you must come with a down payment plus $X amount of your own money for closing costs. If you go below $X amount, the lender would have an issue. As long as it's written in your contract and they are aware of it up front, you should be fine.
Do NOT allow him to accept a check after closing! It will be considered taxable income and the agent could 1099 him as he'll also be paying taxes on the amount as it's his income.
We are purchasing a home and are receiving 2 rebates - one rebate from our lender and one rebate from our realtor. In our case, we will be receiving more in rebates than the total closing costs of our loan. A good problem to have, but a problem none the less. We are receiving conflicting information about our options of what we can do with the excess. What can we legally do with our excess rebates (in order of most to least desirable options)?
* Receive a check at or after closing for the excess rebate balance (as taxable income)?
* Apply excess rebates to the first few months of mortgage payments?
* Apply excess rebates to loan principal (effectively reducing purchase price)?
We know we can buy down our rate, creating additional closing costs and pay for that with the excess, but all of the above options would be more desirable in the short term.
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