Mortgage Loans and Seller Paid Contributions

Here we go again! In the mortgage industry, mortgage brokers have seen as many interpretations of rules as there are actual rules that govern the home mortgage business.

Seller paid contributions (money that can be allocated toward buyers’ expenses of everything from closing costs to pre-paids to escrows and are paid out of the sellers’ funds), may or may not soon be downgraded from the current 6% of the home purchase price to 3% of the home purchase price. Currently, we have no concrete information on an effective date for that change.

However, (mortgage brokers have had to use that word a lot lately!), since January 1st we’ve already seen hiccups in lender interpretations of how to treat owners’ title insurance and tax stamps on the deed in the context of seller paid contributions.

In many regions of the country, these title insurance and tax stamps expenditures were traditionally funded from the seller’s side of the HUD.  But now, if a deal includes a 6% seller contribution, then the owner charges must be represented on the HUD. But some lenders are interpreting the tax stamps on the deed as a charge to the home buyer.

The impact on the home buyer is the discovery that he or she needs to come up with this extra cash at the point in the transaction when buyers are not at their most liquid. This surprise can really cause a hardship and is the kind of stress that can be avoided.

At the end of the day, best practices dictate that in a seller-paid scenario, the home buyer should confirm with their lender whether it is the seller or the buyer that pays for the title and the tax stamps. Avoiding a pre-closing surprise of a buyer paid contribution is priceless.

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