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Seller "gifting" us with closing costs?
Hey guys! I am really in a pickle here and really need your advice. After 4 months of Short Sale process,.. We finally got bank approval today! YAY! ok,.. the issue here is that the sellers agreed to pay our closing costs. (in a nutshell this was a special SS because the husband got transferred from his job) The bank said that they would only pay $3100 towards the closing so we are missing $6900. Now, The sellers got wind of this and said they would pay it for us(since they agreed to from the beginning). The sellers are amazingly nice people and even said that they really like us as well. However, my realtor explained to me that a relative needs to "gift" the money to me and then the sellers would write a check to the relative. Does this sound legit?? I'm a first time home buyer so I have no clue! PLEASE help!!
Re: Seller "gifting" us with closing costs?
We had something along those lines come up with our short sale purchase. I think the bank doesn't allow the sellers to put out any money when they are doing a short sale. We had to negotiate with the bank to cover back taxes that were owed and if the bank didn't agree we'd have to pay. The sellers aren't allowed to put out money for it.
Your realtor is trying to work around that.
So, the bank is taking a loss on the property since it's a short sale, but the seller obviously has $6900 saved that they could be putting toward paying off their mortgage? However, they're giving that $6900 to you instead of the bank that they already owe money to?
I'm not sure of the real estate law and how it applies in this situation, but it seems unethical on the part of the seller to put their nearly $7K in savings toward helping you instead of paying off their debt to the bank.
Mr. Sammy Dog
My Valentine Bookends (2~13~13, 2~15~09)
This is why you write in the sales contract that all closing costs will be paid from the PROCEEDS of the sale.
I wouldn't do it. If you have to cover it up, it's not legit.
She didn't ask if she could afford the house, and she never said she couldn't afford the closing costs. She just asked if the plan the sellers were proposing was on the up-and-up.
You will have to provide documentation on where the "gift" came from when you officially apply for your mortgage (maybe this document is helpful to explain that). I'm not sure that I would want my relatives to be involved in that.
Why not front the money yourselves and have the seller pay you back? That avoids a whole bunch of (semi-shady) work arounds and might simplify the paperwork.
Personally, I would never ask a relative to front money that may or may not be paid back to them.
If you want the house and can afford the closing costs - pay them.
It seems a little fishy...
Talk to an accountant and attorney. I don't agree with your Realtor.
Often, family members will 'gift' money to buyers in order to help them buy. So I think she is confusing it with this.
What I would look into is this: can the sellers pay the closing costs through escrow? There is no reason they need to give you the money so you can pay the closing costs. They can just pay the closing costs. Often times buyers and sellers negotiate on who is going to pay the various fees.
All that being said, you also want to be sure that the lender will allow it. Furthermore, will there be tax consequences? It isn't uncommon for a buyer to pay some closing costs but you want to understand all the possible consequences.
So...talk to an accountant....talk to an attorney....talk to your Realtor and their managing Broker....talk to your bank. But do not take the money until you do so.
Good luck
Lighthouse State Beach, Santa Cruz.
Maybe they have an emergency fund, a furniture/house stuff fund, and a down payment saved up. Perhaps they don't have a closing cost fund, as (at least in my area) it is quite common for the seller to pay for it, not the buyer. Maybe they have a fund, but since the seller agreed from the very beginning to pay for it, simply doesn't want to.
But go ahead, jump to the conclusion that they can't afford it.
Thanks for all your help! I just want to make it clear that I never said that I couldn't afford closing costs! The truth of the matter is that the sellers volunteered to pay for closing costs from the time we put the offer in.
Since then, I have contacted my attorney and he said that he would include in the contract that the sellers would give us the rest of the money for closing. The attorney would present this offer to the bank for approval. I will keep you guys posted and thanks again for all of the advice!