New at real state, question; - Posted by Charles from Miami

Posted by RS on February 24, 1999 at 11:36:59:


It’s probably best to post this question on news group 1. There are a few mortgage brokers who can help with this…

New at real state, question; - Posted by Charles from Miami

Posted by Charles from Miami on February 23, 1999 at 14:12:07:

My older brother recently saw a house in a nice neighborhood (1980 sq. ft.), and appears interested in buying it for personal use (1st. property ever). The owner was asking $96,000 for it, it is appraised in $93K (according to lender) and since he didn’t have a lot of cash to begin with, he tried to come up with some kind of deal. The owner agreed to pay the closing costs (which goes to 5% of the price of the house with that particular lender) if he agreed not to offer lower than $87K, I know he didn’t have enough for the closing cost, so he offered $87 and since is thru VA his down payment was $0 which it was a BIG help. Now, since I’m new at all this and I just started to educate myself on real state dealings, my question is; The owner agreed to a $87K on the house (that by the way appears to be in excellent shape, remodeled after Hurricane Andrew and one of the biggest in the area), my bro offered 87K and the owner agreed in writting to contribute 5% for closing costs (thats $4350.) I am a little confused on why he still have to finance $91,300 with the lender. It seems that he is still paying for closing costs (financed with the loan itself) or the ownwer went up on the price to get those funds back anyway? If I deduct $4,350 from $91,300 gives me around $86,950, could anyone tell me if he got a good deal or did he fell in the paperwork mumblejumbo between broker and agents. I will appreciate any input on this case because knowledge is power and like I said before, I’m new to all this. Please help me to help my brother all you good people out there.

Re: New at real state, question; - Posted by JPiper

Posted by JPiper on February 27, 1999 at 03:19:38:


Your brother should have offered $87,000 for the house. In addition to this he should have specified that the seller was to pay closing costs up to but not to exceed $4370. The offer might have gone on to specify what type of closing costs this was to cover?..such as the VA funding fee (2% as I recall), prepaid expenses, and/or other closing costs.

Your brother would have signed this offer. The offer then would have been presented to the seller. If the seller agreed to the terms, he would have signed it. At that point, a deal has been made. It’s a contract.

At this juncture, the price would not be raised to accommodate the closing costs. The problem is that the contract controls how all this is handled?.and without having the benefit of seeing the contract it’s difficult to say whether what your brother thinks he agreed to, and what is actually in the contract may be two different things.

The best advice here is to read the contract, and then check it against how the loan amount is being arrived at. The way you have presented it makes it sound like the closing costs have been added to the sales price. If the contract says the purchase price is $87K, and if the contract says that the seller will pay buyer closing costs to include the VA funding fee of $4370, then the loan is being calculated incorrectly. Check the contract, and then call the lender for clarification based on what the contract says. Keep in mind that if it’s not in writing, it doesn’t count. The contract controls the deal.

Just to point out, the VA funding fee is typically financed into the loan. This amount to about $2K. If it was intended that the seller pay this that should have been specified in the contract.

One other point. The difference in the payment between the two loan amount is about $30 per month. Now I’m not going to make light of that amount. And you should definitely get what you agreed to in the contract. But on the other hand if this is a house that your brother likes and wants, $30 is not going to make a great deal of difference, one way or another.