Buyers' closing costs: sources?? - Posted by Ron (MD)

Real Estate Investing
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Posted by Nate(DC) on December 30, 2001 at 15:56:08:

Cynthia,

I did just that. Thank you very much for the referral.

If you will read this letter carefully, it says exactly what I said in my post. Namely, that the entire amount can be deducted as a business expense for a profit-motivated seller. This is what I was saying - not that 100% of it can be deducted as a charitable contribution.

It’s kind of a moot point, since unless you are selling your personal residence and have over $500,000 in capital gains, you wouldn’t need the deduction (because any profit-motivated seller could deduct it as a business expense) but I do want to be clear about such things.

Regards,
Nate

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Buyers’ closing costs: sources?? - Posted by Ron (MD)

Posted by Ron (MD) on December 26, 2001 at 20:18:25:

I advertise my rehabs: “$999 Moves You In!”. It really draws attention from prospective buyers (who usually have lousy credit).

Anyway, the way it works is, the buyer comes up with $999, I contribute $2,000 towards their costs, and they borrow the rest from a city Settlement Expense Loan Program (SELP). The SELP loan is usually for about $3,500 and is paid off over ten years. That’s all the need…the FHA loan covers the rest.

Well, the revolting development is the city has run out of money and they are discontinuing the program. I need another approach and am looking for suggestions.

I prefer not to go the Nehemiah/Hart route because that means I’m coming up with the settlement costs (plus some) out of my profit. (I already price my houses at the top of the market and don’t think I can simply boost the price to cover the extra settlement help.)

One local lender advertises “zero closing cost loans” where they jack up the rate and give the buyer a large lender credit to cover all closing costs. I have a call in there, but haven’t heard back. I suspect that they require you to also go through their RE broker (hence a commission I ordinarily wouldn’t be paying). I’ve asked a few lenders if it’s possible to pay closing costs using a large lender credit, but they act like I’m speaking a foreign language. (Actually, FHA may prohibit this. FHA allows the buyer to use the SELP loan toward their down payment, etc., but I think the limit seller contribution and lender credit to 6%, which isn’t enough.)

Another possibility is at least one lender has an in-house SELP-type loan. I’m also trying to reach them.

This seems like it must be a very common issue. What do others do to deal with it? My buyers have to scrape to come up with $1,000, I don’t know how they’ll get another $3,500, and I sure don’t want to pay it.

Thoughts?

Thx.

Ron Guy

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Re: Buyers’ closing costs: sources?? - Posted by Redline

Posted by Redline on December 27, 2001 at 16:51:34:

Ron,

If you kick in the extra funds and take back a note 1) will the bank have a problem with this? 2) if/when they dont pay - can you use it as a write-off?

I’m afraid I don’t have any great ideas.

RL

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Re: Buyers’ closing costs: sources?? - Posted by Nate(DC)

Posted by Nate(DC) on December 26, 2001 at 21:57:58:

Ron -

There is also the Maryland state DSELP - which is currently out of funds, but at least isn’t being totally cancelled. I don’t know what the status is re: reinstatement of the program.

http://www.dhcd.state.md.us/dselp/index.cfm

I think you’re on the right track looking for “negative point” loans.

Beyond that, if you have to start dipping into your own funds I do know that you can do up to 10% with an FHA loan. New Life Housing or Neighborhood Gold are two programs that allow you to give the buyer a credit of up to 10% of the purchase price. Both will work with FHA loans.

Good luck.
NT

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Re: Buyers’ closing costs: sources?? - Posted by Nate(DC)

Posted by Nate(DC) on December 27, 2001 at 17:47:29:

FHA, at least, will not allow a seller second at the table. So this would leave the option of not using an FHA loan - which is probably infeasible for most first time buyers in inner-city Baltimore - or not tell the lender and commit loan fraud - which is a bad idea in any case.

NT

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Re: Buyers’ closing costs: sources?? - Posted by Cynthia

Posted by Cynthia on December 27, 2001 at 24:19:07:

well i can see that you aren’t crazy about us REALTORS,but in your situation you are in need of a BETTER lender…Nehemiah is probalbly your best bet and why isn’t your lender helping you find this or other programs?..please keep in mind ( i think all of the funds towards Nehemiah are a tax deduction) ask your CPA, but it’s better than lowering the price…sounds like you need to find a NEW LENDER

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Re: Buyers’ closing costs: sources?? - Posted by Nate(DC)

Posted by Nate(DC) on December 27, 2001 at 10:31:13:

Cynthia,

What message did you read? Both Ron and I are Realtors, thank you very much. Also - the funds paid towards the Nehamiah type programs typically are NOT a tax deduction. They are a “service fee”, not a donation.

NT

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Re: Buyers’ closing costs: sources?? - Posted by cynthia

Posted by cynthia on December 27, 2001 at 23:49:18:

NT,

I’m very sorry if i offened you in anyway, I had no idea you were a Realtor and because e-mail does not always come across as the way we intend i made a HUGE mistake.

As for the Nehamiah program, you need to check this out agian, this program is approved through HUD as a
“GIFT” not a “service fee” and because this is a non-profit all seller contributions (excluding the funding fee) are a tax deduction, My lender has an IRS approval letter that i would be happy to fax to you.

Cynthia

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Re: Buyers’ closing costs: sources?? - Posted by Nate(DC)

Posted by Nate(DC) on December 28, 2001 at 17:41:50:

Cynthia,

No offense taken; you’re right how it’s hard to read emotions electronically.

I am interested to know about the tax deductibility of the Nehemiah contributions. I have always been under the impression that the service fee, like any service fee paid to a non-profit in which something of value is received in return, is not tax deductible as a charitable contribution. Now, if you are selling an investment property, the fee would be deductible as a business expense, but that is true whether the fee is paid through a nonprofit or as a direct sales concession to the buyer. That’s the general rule of tax law: if you give money to a nonprofit and receive nothing in return, it’s deductible as a charitable contribution. If you give money to a nonprofit and receive something of value in return, it is NOT deductible as a charitable contribution. Otherwise, there could be nonprofits set up that would “borrow” assets from people and give them huge tax write-offs.

The fact that HUD has approved the program has no bearing upon whether or not the service fee is considered a charitable contribution. I encourage you to check your facts with a tax professional before trying to deduct these fees as a charitable contribution.

Regards,
NT

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Re: Buyers’ closing costs: sources?? - Posted by Cynthia

Posted by Cynthia on December 28, 2001 at 20:51:59:

NT,

Just a quick note go to www.FuturesAssistance.com, click on forms and scroll down you will find an opinion letter from a CPA regarding deducting this contribution.

hope this helps,

Cynthia

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Re: Buyers’ closing costs: sources?? - Posted by Cynthia

Posted by Cynthia on December 28, 2001 at 19:46:18:

NT,

While i do agree with what you have said,My lender really did her homework regarding this and does have a letter from the IRS.

Keep in mind that you (the seller) are making a contrubition to a non-profit and that these funds are not going back to you, instead Nehemiah “gifts” these funds to the buyer,the only real Value to the seller is getting the home sold. The way i understand it the only part of the max 6% that is not a tax deduction is the fee that Nehemiah charges(here it is $950.00)

You may want to check out Nehemiah’s web site at www.getmaxflex.com they may have more info on this or i can fax you a copy of the letter my lender has.

Also there is a new program a Nehemiah knock off called FUTURES Home Assistance Program and i think they are now nationwide www./FuturesAssistance.com

Happy Selling,

Cynthia