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.