March 26, 2019
Many first-time home buyers hate the idea of negotiating, haggling, or otherwise trying to adjust the price of the home with a seller.
But haggling has some benefits that can directly affect how much money you pay for the home and NOT just where the general price of the property is concerned.
Why Should A First-Time Home Buyer Be Willing To Negotiate With The Seller?
The most obvious reason to haggle with the seller of the real estate you want to buy is to get a lower price. And this also becomes more crucial if the appraisal comes back lower than the asking price of the property.
The buyer cannot be forced to close the deal in cases where the appraised value of the home is lower than the asking price. The FHA home loan itself will be issued for the asking price OR the appraised value-whichever is LOWER.
If your appraisal results are lower than the asking price, borrowers can negotiate with the seller to get a lower price if the seller agrees, or the borrower can choose to pay the difference out of pocket (it cannot be financed).
But the borrower’s third alternative is to walk away from the loan without penalty. You will need to ask the lender what the approved procedure for doing so is, but in essence you cannot be forced to pay the difference out of pocket.
Haggling With The Seller For Closing Cost Contributions
FHA home loan rules state that the seller is not allowed to contribute money towards your down payment, but you can still reduce your out-of-pocket expenses by negotiating with the seller to contribute up to six percent of the sales price of the home toward closing costs.
Closing costs are separate from down payment expenses and the amount of money you pay for closing costs cannot be considered part of your down payment.
That is why negotiating with the seller for those contributions toward closing costs is so important; if the seller agrees you can take the money you would have used to close the loan and put it toward the down payment.
The seller has a financial stake in the outcome of the transaction and because of that, no contributions or gifts of down payment assistance are permitted.
Remember that in these cases, state law, lender requirements, and other rules may apply beyond FHA home loan minimums. Ask your loan officer for more information in these areas before you proceed for best results.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
Browse by Date: