(Issues with “Closing Cost Credit” – Part 2) Last week’s “Tucker’s Tip” discussed certain problems as to what will be allowed as a Seller paid “closing cost credit.” Even if the contract language is clear as to what constitutes a closing cost credit, what happens if the closing costs only total “$5,000 and the contract allows $6,000 as a credit? Does the Seller benefit and get to keep the extra $1,000? If the lender allows it perhaps the contract can state that any unused portion of the “closing cost credit” can be applied as a decorating allowance. Other alternatives include increasing the “points” paid to lower the interest rate or reducing the contract price by the amount of the unused closing cost credit. This last solution may create a lender issue by attempting to amend the contract price at the last minute.
Another issue with closing cost credits involves short sale lenders. Some short sale lenders will not allow any Purchaser closing costs to be paid from the sales proceeds. In these cases, the short sale lender will usually allow an amendment to the Contract reducing the contract price by an amount equal to the closing costs credit.
An additional problem that may occur is the short sale lender, in approving the final HUD, wants to review a break-down of the Purchaser’s closing costs. The short sale lender may then decide not to pay a legitimate closing cost, even if it is clear in the contract. Should this occur, everyone needs to remain flexible as usually a solution can be worked out.
PS: If you have any thoughts or comments, please let us know for possible follow ups.