Sam Schneiderman, Broker-owner of Greater Boston Home Team, discusses how a credit toward closing costs can and can’t be used. After a home inspection, it is not unusual for a buyer to ask a seller to correct some “deferred maintenance” or other defect in the home that was not obvious when the buyer and seller agreed on the price. Sellers are usually reluctant to do much work on their property because there is always the possibility that the buyer might not get a mortgage or might not like the way the work was done. Many sellers will instead offer to give a buyer cash at the closing, but Fannie Mae and Freddie Mac lending guidelines don’t allow a buyer to receive cash from a seller. Instead, a buyer can receive a credit from the seller at closing or a reduction in the purchase price. Most of the time the wisest course for the buyer is to take the credit so that he can save his own cash to pay for the work. Most lenders limit the amount of the credit to no more than three percent of the sale price, and the buyer is only allowed to use the credit toward closing costs and pre-paid expenses. Closing costs include
lender’s fees, mortgage origination fee and/or points charged for the loan program, the fee for the lender’s attorney, title search fee, lender’s title insurance, owner’s title insurance, and document recording fees at registry of deeds. A pre-paid expense is for certain items that the buyer pays for in advance or deposits in an escrow reserve account with the lender, including money required to establish an escrow reserve account with the lender to pay tax and insurance bills when due, any property tax bills required to be paid in advance at closing, and advance PMI (Private Mortgage Insurance) payments, if applicable. | Read More
