how does asking the seller to up the selling price help me?

Question

i need 5 percent in order to buy a home. no down payment

Answer 1

There are no free lunches, everything has a price.

The only benefit for you is that you so not have to have the same funds available as cash.

If you want a "reluctant" seller to pay some costs on your behalf to buy a home, it may be possible to raise the selling price some, and in some markets that are appreciating rapidly, more likely so. The key is that the contract price, after increasing over the original listing price, equals or exceeds the appraisal value. If the appraisal is lower, then the contract price must be adjusted back to the appraisal value (unless the appraiser is persuaded with other comparable properties that the value is indeed there) when using a FHA or VA backed loan.

Assuming it does appraise, and you go on to close what you have in effect done is rolled the financing costs into the loanl. If you can pay the financing costs up front you save a ton of money via not paying interest. However, 5% for closing costs is a little much. All lenders are required by HUD to provide you with a "Good Faith Estimate" (GFE) which is to reflect as accurately as possible the actual expected closing costs and account for all you spend to buy the home less the home inspection. Go to another lender, have a GFE run and compare their fees. FHA requires 3% down and about 1% guestimated more (equilivent) for prepaid costs. So on a $100K mortgage, loan fees are expected to be in the $3,000.00 range with prepaid (credit report, appraisal, first years insurance, flood cert fee) somewhere around a $1,000.00+/-. Not hard science on the prepaid costs but my rule of thumb.

Sometimes a lender will have a loan product that with a quarter point or so increase in the interest rate the lender can cover your closing costs. Again somebody has to pay for this program. Ultimately it is the borrower. So if the bank pays either the down payment and the seller pays what ever the bank does not pay you have in effect a 100% financed mortgage.

I urge you to consider waiting and saving some funds as the real estate market is slowing (not stopping) in some areas and as it slows you'll find you have more clout in bargining. As you save the funds for either a down payment or closing costs the overall cost to buy long term will decrease. Interest rates already have declined a bit the last several days. You may get a seller to pay some of your closing costs w/o raising the sale price- better for you.

Using the AmeriDream or Nehemiah plans are ok, as are other plans like Farmers Home Loan, but there are no free lunches, somebody has to pay. The end user ultimately is the who.

Answer 2

Asking the seller to up the price of the house will allow you to cover your closing costs and the 5% needed to buy the house. Basically what will happen is that through your mortgage company, you will pay the seller the increased price of the house, and the seller will credit you back the difference you agreed on increasing it so you could cover that 5% and the closing costs. Many 100% financing options are like this.

Answer 3

It really doesn't. Most lenders are wise to this ruse and will not play along.

If the lender is willing to make a 95% loan, they will limit it to 95% of the appraised value or 95% of the selling price, whichever is less.

Most lenders will ignore line items on the settlement form marked as "paid outside escrow" when calculating the maximum loan amount.

And no closing agent is going to risk their reputation and livelihood by falsifying the settlement documents.

One way you CAN get around the lender's 5% requirement is to have someone else pay it for you as a gift. The safest way to do this is with a program such as the Nehemiah Program. Go here to see how it works: http://www.nehemiahcorp.org/

I just sold a home under Nehemiah and it made the deal possible. I got something very close to my asking price, and a nice family got a very nice home.

Answer 4

That one answer about Nehemiah left out some critical information:

1. you can only use it with FHA loans, and

2. it also involves increasing the sales price, because the seller has to contribute the amount of the "gift" plus fees.

Rick Lanicek
www.primelendingonline.com

Answer 5

You don't need to do this. You can ask seller to drop 5% of their asking price now.

If your broker went along with the idea of bumping up sell price, you might want to get another agent.

I had similar case that 5% off would help me a lot. My agent didn't even think of lowering the asking price. Instead, she wanted me to cash out my 401K.

http://nobubble2006.blogspot.com/

--------------- these are from CNN news ------------

http://money.cnn.com/2006/08/24/news/economy/newhomes/index.htm
http://money.cnn.com/2006/08/23/news/economy/homesales/index.htm

Answer 6

Because they can contribute up to 6% of sale price toward your closing costs.So you are really financing your closing costs.