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Profile picture for L_Mcqueen

Seller credit back

I am getting $6750 credit back from seller  on escrow towards non-recurring closing cost. My closing cost without points is $3000. INitially I was thinking of paying 1 point to get better rate. But I am reconsidering paying points which means my closing cost is less than the credit back. Any advice on what can be done? Can the remainder be used towards any other expense such as home improvement etc?
  • November 15 2009 - San Jose
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Answers (24)

The remainder can be used to go towards the downpayment to lower your loan amount... Hope this helps!
  • November 15 2009
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Most loan programs allow the credit to be applied to recurring closing costs as well.

Check with the lender and check that he recurring closing costs are more than 3750
(you can set up an impound account to increase these recurring costs).

Then check your contract - if the credit says NRCC then get an addendum to say closing costs without specifing non recurring.

If you still have too much credit you should lower the purchase price and credit by the same amount.
  • November 15 2009
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Profile picture for L_Mcqueen
Thanks all. I think i will reduce the loan amount.
  • November 15 2009
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Good choice L_Mcqueen -
  • November 15 2009
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Profile picture for Erez Cohen
You cannot lower your loan amount by the seller credit.  You must redo the contract and have the sale price lowered.  That is the only way to get this done if you do not wish to get a lower rate and or use the funds towards other closing costs.
  • November 16 2009
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Profile picture for shapiroamg

Dont have the loan reduced. In the end t will barely affect your mondy needed to close especially if you are doing an FHA loan with 3.5% down. Call your lender/broker and ask they to figure out how much of the remaining credit could be used to buy down the interest rate (paying points). You will benefit more with a lower rate than $3k less in purchase price.

  • November 16 2009
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Profile picture for wetdawgs
If the credit is towards "non-recurring closing costs", then you may not be able to get the entire credit.   It must be used for items mentioned in the original contract unless renegotiated with the seller.
  • November 16 2009
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Has anybody initiated Tracy yet? She gets away with some zhitty responses. I think her badge should be confiscated.
  • November 16 2009
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Yes there is no way you can apply the extra to downpayment to lower the loan amount.
You need to change the sale price and credit by the same amount.
Or apply the extra to points or if allowed recurring closing costs
  • November 16 2009
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With all due respect, the last poster told you to reduce your loan amount.  Lenders will not allow you to use this seller credit to lower your loan amount....only non-recurring and recurring closing costs.

Consult your lender.

Good Luck.
  • November 16 2009
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Profile picture for L_Mcqueen
Seems like reducing loan amount is not an option. Seller is not going to agree to rewriting the contract because of the risk of delaying the closing. THis is a not  an FHA loan. THIs is a high conforming loan of 729K with 20% down. So is paying down points the only option?

I didnt understand the option suggested to use it towards recurring closing cost. Does that mean the money will be in escrow and monthly a part of it will go towards my monthly payment?
  • November 16 2009
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That means it will go into the escrow accounts for Property Tax and Homeowners insurance. It will come out of those accounts when those recurring items come due. These are technically not closing costs, they are settlement charges.

If your contract says "non-recurring costs" you will lose this additional cash unless you can use it to buy down the rate. Whomever helped you prepare your contract may have done you some disservice.
  • November 16 2009
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Profile picture for shapiroamg
Does the contract wording specifically say "Non-Recurring Closing Costs"?

If so that is Appraisal, credit, processing, underwriting/funding, and all title charges.

Speak to your LO. Make sure they have an accurate estimate of these non recurring charges. Title insurance has two parts: lenders and owners. Have him/her add in the owners policy. Once you have that figure, then subtract from the amount of the credit and you will then have the amount you can use to buy down the interest rate.
  • November 16 2009
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Profile picture for L_Mcqueen
Yes. It says NRCC. Let me talk to my LO. THanks for all your advice.
  • November 16 2009
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Can those of you posting that the credit can go towards the principal please explain exactly how that works? I'm under the impression it cannot,.....maybe I can learn something though....
  • November 16 2009
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>Can those of you posting that the credit can go >towards the principal please explain exactly how that >works?

only one person is saying that.. and they are wrong
  • November 16 2009
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Profile picture for SunTrust

The extra can be applied towards the down payment,but in this way.....

The $3,000 would be deducted from the purchase price before calculating your 20% down.

However given high balance loans are running around 4.875% give or take; your talking about a $15 reduction of your payment on the lower loan amount whereas buying down the rate with it, $3,000 is about a 1/2 point which would give you about 1/8 lower on the rate; would lower your payment $58.

  • November 16 2009
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Profile picture for L_Mcqueen
Is the relationship betwen points you pay and rates you save mostly same across lenders or does it vary like the  mortgage rate itself from lender to lender and day to day?
My lender is offering 0.75pts for 1/8 reduction in rates and 1.75ptr for 3/8 reduction in rates. The reason I am having second thoughts about points is it doesnt seem like a good deal to me.
  • November 17 2009
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Thanks for the correction of that mundane detail Dr. Mark. I was trying not to name names. It seems from Tim's post, it is an option to use the funds towards principal. Might not make the most sense,....but I was asking how its done.
  • November 17 2009
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The 'spread' between rates and the points changes as well as the rates overall day by day. It seems you are close to the end of the process and thus have locked - so the rate options and the points will be locked too. You should be able to switch between rates based on the same day you locked.

You should probably stick with your current loan agent at the moment - s/he has done the work and you are close to closing. unless of course you don't think they are doing a good job (and having to ask advice here instead of with them might indicate that)

Some lenders may allow excess credit to be applied to the principal.. that would be the easiest option if you don't want points. What does your current loan officer say?

  • November 17 2009
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The cost of the buy down doesn't sound real bad, especially the 1.75 for .375. If you are near closing etc...you have few choices. Someone's inexperience put you in this predicament, and there is no easy out. To get the difference between actual NRCC and the credit back in your pocket you would effectively have to start over with contract negotiations which actually, puts the house you have chosen back on the market until you have worked out the details with the seller. There could be a buyer in the background that wants it more than you. We can't tell if your  loan price is fair without knowing the rate with points and w/out.

PS A smartass sellers agent may claim that discount points are not NRCC.
  • November 17 2009
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I wouldn't say that was a mundane correction Robert.
Every one is largely in agreement and the problem arose for the first poster  who probably wrote a 'throw away' comment without thinking it through.

All the subsequent comments and counter comments are mostly in agreement and are probably only confusing poor l_

I would recommend l_  talk to the current lender and see what options are available with that lender or investor.
If you are not confident that they are giving you the correct or best advice, and it is not too late,  then choose another lender

I think we have thrashed this topic to death now.

Good Luck L_!
  • November 17 2009
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I was asking how to do it. Not whether it was best choice. More than one person seemed to think it was possible. So I asked my question to those in the thread. Therefore I was corrected on a mundane detail and not answered correctly by you. I belive Tim answered my question. Thanks Tim. Seems OP was not completely wrong, just may not have been the best advice.

Topic is now deaderer    ; )

  • November 17 2009
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What Tim said is slightly oversimplified. To do this you would have to break the original contract, and renegotiate a new contract. Some Sellers aren't that easy to deal with. They would make you eat your agents mistake. This is an LO suggesting a fix of an REA issue. It is not a given that it would work. I think OP wanted a way to fix it on her side, by restructuring her loan only, not the whole contract, without involving the Seller. 

Benham, I agree that "Dr Smith" may be building his post count by pointing out the mundane.
  • November 17 2009
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