Can Sellers Credit Buyers for Prepaid Closing Costs?
The real estate market has slowed down in many parts of the country and turned into buyer's markets. This means that buyers are now calling the shots. Instead of being forced to choose among a handful of homes to buy, buyers can be very selective and take a bit longer to find that perfect home.Moreover, almost three out of every five transactions in these slumping markets involve a cash credit to the buyer. In most instances, this credit is to be applied toward the buyer's closing costs. Beware, though, buyers who demand a closing-cost credit really should ask their lender about it before writing an offer. Those who take it for granted that the lender will allow a credit (or how much of a credit) can find themselves in a bit of a predicament midway through the deal if the lender says no to the closing-cost credit.
Because no matter what you hear, there is no such thing as cash back to the buyer at closing, i.e. money into the buyer's pocket. Listen to me: No. Such. Thing. Except for those with curled mustaches who toy with the law.
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Comments
This is so false and misleading. Cash back to the buyer is FAR from illegal. There is such a thing, and It. Is. Legal.
Watch who you take advice from. It’s illegal if you defraud someone in the process, otherwise it’s accepted, legal, and common.
Tell me, Nick, which institutional lenders do you know that will allow a 100%-financed buyer in the United States to get cash back at closing? I’d really like to know the names of these mythical companies because, quite frankly, they do not exist.
Great post. I know, I read about a “cash back” scenario that sounded like such an innocent deal. It’s a shame how often this happens. The buyer thought she was just getting change back! Seems to be an alarming trend, the mortgage fraud business. I am concerned that this will get worse before it gets better. What do you think?
Mortgage fraud seems to go up in buyer’s markets because sellers, desperate to sell, often let it happen. There are more chances it will happen when buyers are calling the shots, and that’s unfortunate. The crooks seem to come out of the woodwork in buyer’s markets.
Hi Elizabeth,
if the seller agrees to credit say 10,000 and closing costs including interest buydoen come to 9,000, is there any other way to use the remaining 1000 dollars? If not what will happen to it?
It depends if $10K exceeds your 3% limit. Otherwise, you can apply the balance to further pay down the rate.