Lender Paid Closing Costs: Vital in a Seller Market

Lender Paid Closing Costs: Vital in a Seller Market

I have a handful of clients who have been writing offers to no avail for the past year. Recently one of those clients requested an updated Pre-qualification Form, they were going to make their 23rd offer in the past 12 months. I don't  mind sending out updated Pre-qualification Forms, it's part of my job as a Loan Officer, but I decided to have a heart-to-heart with the client about their offers. They were always asking for the seller to pay the closing costs, in this market they might have a better chance of winning the Power Ball drawing.

I suggested rather than going with the rock bottom lowest rate of 3.125% on a 30-year fixed FHA, instead go with 3.25%, only a difference of $14 a month on a $200,000 loan amount. The appeal is that at 3.25% for the pricing that day, there is a premium (yield-spread-premium, YSP, or also called rebate) of 2%* of the loan amount that can be applied toward closing costs, so on a $200,000 loan amount the buyer can get back $4,000 to apply toward closing costs, that should be enough to cover the closing costs in most situations, lender fees ($995 flat fee for Freedom Mortgage, much lower than most of the industry), title/escrow fees, homeowners insurance, appraisal, property tax escrows, flood certification, recording, and in some cases even a home warranty, home inspection (if they will bill at close of escrow), termite inspection, termite treatment, etc. if there is enough premium, the higher the rate the more of a premium the buyer can have back toward closing costs. On that same day a borrower could have had a rate of 3.99% and received 5%* of the loan amount back toward closing, on a $200,000 loan amount that is $10,000, way more than is necessary. 

The reason I am writing about this is because as a lender I work with buyers, and if buyers don't have accepted contracts it does none of us any good. When a buyer is asking for closing costs from a seller in a seller's market it is time to forge a better game plan, and the game plan is for premium pricing to cover the closing costs. It works great, but keep in mind that to use it your client needs to be in tune with what the premium pricing is for that day so if the offer is accepted the rate and premium can be locked in before it changes.

Are all lenders created equal? No. Not all lenders give this premium to their clients, some of them stick it in their pockets instead, I know this because when I talk to former colleagues this is the stuff we talk about, boring yes, yet insightful. So you and your clients should be asking about premium pricing and whether it is going back to the buyer or not. Specifically ask, "at what rate could the closing costs be covered by the lender?" If the answer is, "we can't do that," my number is 480-203-4641, we CAN do that. We also do FHA and VA down to a 620 FICO score, some lenders are as high as 640 - 660 for their minimum FICO score, this is known as a bank overlay, which vary by lender.

 Have a mortgage or credit question you would like for me to cover on this blog? Shoot me an email so I can address it. If you want to apply for a mortgage in Arizona give me a call at 480-203-4641, the application process is easy, and it only takes 10 minutes for me to get the information to get you started on your way to home ownership.

Patrick Ritchie
Mortgage Finance Instructor

Ritchie School of Real Estate Finance

480-203-4641 Cell
Patrick@PatrickRitchie.com

NMLS# 276438 AZ#0913109
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