Realtor Cashback Higher than Closing cost / Need Advice

Archived From: Finance
  • Page :
  • 1
  • Text Only
Voting History
rated:
Hello,
I am purchasing a new construction, and I am using a part-time realtor from my work.
He agreed to contribute 2.5% out of 3% commission toward closing cost.
Basically, he's charging 0.5% commission to let me use his name on the contract. 
This is typical rate from online realtor in Texas.
In addition, I am getting $4000 credit from builder preferred lender toward closing cost.
This is where problem starging Having too much credit toward closing cost.

Expected Closing Cost: $7000
Credit from Lender: - $4000
Credit from Realtor: -$10,000
--------------------------------------------
Closing w/o Down:  - $7000

Basically, I will have credit of ($7000) which I cannot pay toward Down payment during closing. Builder/Lender/Agent said this is against law. 
Lender knows this situation and she's suggesting to buy down the rate, but I was already planning to refinance through Penfed 5/5 ARM.
I am pretty sure buying down rate will be still higher than Penfed 5/5 ARM rate. 
I wish I can prepay the property tax but lender said I can't due to property being new, (Will be charging minimum portion for 1st year)

Is there any idea to use this extra cash during closing?
If I buy down the rate, can I use point for tax deduction even though fee was not really paid by me? 
 
Thanks

 

Member Summary
Staff Summary
  • Also categorized in:
Thanks for visiting FatWallet.com. Join for free to remove this ad.

How much property tax / HOA fee / homeowner's insurance can you prepay?

Just have him rebate it outside of closing and write it off as marketing. You'll get less because he has to pay his broker but it's something. Or you could ask your builder to take their $4k and use it for upgrades then use your realtor to pay closing costs.


Amendment example
Disclaimer
Escrow will be tiny because you're closing in January (I'm assuming), so it would only be a couple months of property tax.  And prepaids will just be your homeowners insurance.

The easiest solution is a contact modification to reduce the purchase price 2.5% and decrease the buyer agent commission 2.5% (apply it to purchase price). That's what was done at the last stage when i bought my house. As yours is new construction, the builder may not want a lower purchase price recorded on public records. Some states do not require purchase price to be reported though (like Texas, the form can be filled out with a - or a $0), so they should have no problem.

Be sure to keep the documents showing your real purchase price (after both rebates) to use for property tax protest. They should adjust down to your actual purchase price with little effort required, at least for the first year.

Edit:  I've attached a copy of the Amendment from my purchase contract for an example.  In my purchase, the Buyers agent/broker I used gave me 1.5%, plus there was $500 for repairs, and "closing cost assistance" in the original accepted offer.  Again, the only complication here is that the "builder" may not want a lower sale price published on MLS, but they get the same amount of money (actually a little more because their realtor gets a very tiny amount less commission).  TX does not require the sales price in public record, but the MLS "requires" it, although there are are agents who still don't post them or delay several months before posting some sales.  You have more pressure to get any change you want if you're still in the unrestricted option period and offer to end it along with the amendment.  (The final version of the amendment on my contract had that option checked as well).

haloseven said:   Just have him rebate it outside of closing and write it off as marketing. You'll get less because he has to pay his broker but it's something. Or you could ask your builder to take their $4k and use it for upgrades then use your realtor to pay closing costs.
  He'll have to (is supposed to anyway) issue you a 1099.  We had a similar situation on a house we closed on last year.  The realtor told us that if it could go against closing costs, he didn't have to issue a 1099, but if he wrote us a check, he would.  Our lender at first told us they wouldn't apply the realtor credit against prepaids, but they ended up allowing it, so no 1099 for us.

Envelope and cash.

Housewarming gift... box of vanilla gc's

BPANZER1 said:   Housewarming gift... box of vanilla gc's
An extra $10k fictitious sales price is ~$300/year in additional property taxes in Texas. Plus it's illegal not to have any rebate on the closing documents

As it is he's also already wasting $3k by using the builder's lender and intending to refi. Instead, he should get a zero cost /neg cost that will have the lender cover all closing costs if he's intending to refinance.  If you're intending to refi, then you should be taking a higher rate and getting the lender to cover 100%+ of the closing costs (and even some of your prepaids).  When I purchased the lender covered all closing costs + $1000 in escrow.

Depending on the lender and underwriting, you may be allowed to use the extra money for Home warranty purchase( max 2 years) and HOA fees(max one year) + may be inspection costs ( Radon + walk thru + termite/pest) if any. Ask the lender you are working with, to get the best answer.

yupkisama said:   Hello,
I am purchasing a new construction, and I am using a part-time realtor from my work.
He agreed to contribute 2.5% out of 3% commission toward closing cost.
Basically, he's charging 0.5% commission to let me use his name on the contract. 
This is typical rate from online realtor in Texas.
In addition, I am getting $4000 credit from builder preferred lender toward closing cost.
This is where problem starging Having too much credit toward closing cost.

Expected Closing Cost: $7000
Credit from Lender: - $4000
Credit from Realtor: -$10,000
--------------------------------------------
Closing w/o Down:  - $7000

Basically, I will have credit of ($7000) which I cannot pay toward Down payment during closing. Builder/Lender/Agent said this is against law. 
Lender knows this situation and she's suggesting to buy down the rate, but I was already planning to refinance through Penfed 5/5 ARM.
I am pretty sure buying down rate will be still higher than Penfed 5/5 ARM rate. 
I wish I can prepay the property tax but lender said I can't due to property being new, (Will be charging minimum portion for 1st year)

Is there any idea to use this extra cash during closing?
If I buy down the rate, can I use point for tax deduction even though fee was not really paid by me? 
 
Thanks

 

  The lender should easily be able to offer you a compelling product with 7K in buy down.  You need to post what they are offering you.  I both worked in the mortgage industry and have the PenFed 5/5 ARM (when it was by far the best product on the market) but I have trouble believing they cant offer you something you should strongly consider with 7K in discount fees/points.    

put less down and have the 10k go towards paying off PMI in a single payment 

So you're putting in a down payment but you cannot apply the 7K credit as additional down payment. Can't you put the usual down payment and then you get the 7K refund after closing? When I bought my house (CA), I gave them the usual down payment but got credited some amount back due to preferred lender credit and additional credit from getting a rate .25% higher. Maybe it has to do with being a credit from realtor.

Bend3r said:   Escrow will be tiny because you're closing in January (I'm assuming), so it would only be a couple months of property tax.  And prepaids will just be your homeowners insurance.

The easiest solution is a contact modification to reduce the purchase price 2.5% and decrease the buyer agent commission 2.5% (apply it to purchase price). That's what was done at the last stage when i bought my house. As yours is new construction, the builder may not want a lower purchase price recorded on public records. Some states do not require purchase price to be reported though (like Texas, the form can be filled out with a - or a $0), so they should have no problem.

Be sure to keep the documents showing your real purchase price (after both rebates) to use for property tax protest. They should adjust down to your actual purchase price with little effort required, at least for the first year.

Edit:  I've attached a copy of the Amendment from my purchase contract for an example.  In my purchase, the Buyers agent/broker I used gave me 1.5%, plus there was $500 for repairs, and "closing cost assistance" in the original accepted offer.  Again, the only complication here is that the "builder" may not want a lower sale price published on MLS, but they get the same amount of money (actually a little more because their realtor gets a very tiny amount less commission).  TX does not require the sales price in public record, but the MLS "requires" it, although there are are agents who still don't post them or delay several months before posting some sales.  You have more pressure to get any change you want if you're still in the unrestricted option period and offer to end it along with the amendment.  (The final version of the amendment on my contract had that option checked as well).

  
Thank you for your feedback and attachment. I will ask my builder agent again, but similar suggestion was made by Lender to the builder agent. 
Builder is now saying this is against TREC (Texas RE Commission) but I think it's more to do with lowering price of house. 
House will be finished by end of January, and I don't have much prepayment option like you mentioned. 

Thanks,
 

anthonyu said:   So you're putting in a down payment but you cannot apply the 7K credit as additional down payment. Can't you put the usual down payment and then you get the 7K refund after closing? When I bought my house (CA), I gave them the usual down payment but got credited some amount back due to preferred lender credit and additional credit from getting a rate .25% higher. Maybe it has to do with being a credit from realtor.
 
Right, I can't use closing credit toward home price. Any surplus will be returned to the realtor since it's coming out from his contribution. 

bpp said:     The lender should easily be able to offer you a compelling product with 7K in buy down.  You need to post what they are offering you.  I both worked in the mortgage industry and have the PenFed 5/5 ARM (when it was by far the best product on the market) but I have trouble believing they cant offer you something you should strongly consider with 7K in discount fees/points.    
  
I am waiting for this information from my lender.
Back in September, builder preferred lender told me 3.625% for 30 years, when most other banks offered 3.125% 
The lender alleged that 3.625% was estimated based on future closing date but I called this BS. 
 

taxmantoo said:   How much property tax / HOA fee / homeowner's insurance can you prepay?
  
Due to being a new construction, I probably have to pay the property tax for land. 
The lender told me that it will not be high.
HOA: $720

The lender told me to get Homeowner's Insurance paid by closing cost. 
I was thought about getting the highest coverage to inflate the insurance expense, 
then change to a difference company to get some refund.
I am not sure if money will return to closing company, not me. 

yupkisama said:   
The lender told me to get Homeowner's Insurance paid by closing cost. 
I was thought about getting the highest coverage to inflate the insurance expense, 
then change to a difference company to get some refund.
I am not sure if money will return to closing company, not me. 

Yes, first year HO insurance will come out of closing. Plus maybe(? depends how escrow company calculates.. mine put it on there but I got a refund in the mail before I deleted escrow because escrow was too "large" from allowed).

You can inflate the Home Warranty (American Home Shield) and request full refund in first 30 days. Not sure how that works into new construction, though (where I'm assuming you already get a warranty from the builder).
These still all add up to less than your realtor's commission rebate.

yupkisama said:   
Bend3r said:   Escrow will be tiny because you're closing in January (I'm assuming), so it would only be a couple months of property tax.  And prepaids will just be your homeowners insurance.

The easiest solution is a contact modification to reduce the purchase price 2.5% and decrease the buyer agent commission 2.5% (apply it to purchase price). That's what was done at the last stage when i bought my house. As yours is new construction, the builder may not want a lower purchase price recorded on public records. Some states do not require purchase price to be reported though (like Texas, the form can be filled out with a - or a $0), so they should have no problem.

Be sure to keep the documents showing your real purchase price (after both rebates) to use for property tax protest. They should adjust down to your actual purchase price with little effort required, at least for the first year.

Edit:  I've attached a copy of the Amendment from my purchase contract for an example.  In my purchase, the Buyers agent/broker I used gave me 1.5%, plus there was $500 for repairs, and "closing cost assistance" in the original accepted offer.  Again, the only complication here is that the "builder" may not want a lower sale price published on MLS, but they get the same amount of money (actually a little more because their realtor gets a very tiny amount less commission).  TX does not require the sales price in public record, but the MLS "requires" it, although there are are agents who still don't post them or delay several months before posting some sales.  You have more pressure to get any change you want if you're still in the unrestricted option period and offer to end it along with the amendment.  (The final version of the amendment on my contract had that option checked as well).

  
Thank you for your feedback and attachment. I will ask my builder agent again, but similar suggestion was made by Lender to the builder agent. 
Builder is now saying this is against TREC (Texas RE Commission) but I think it's more to do with lowering price of house. 
House will be finished by end of January, and I don't have much prepayment option like you mentioned. 

Thanks,

  That is exactly it, they don't want the comps to show that your house sold for $7K less when they are try to sell the next house.

Do you have to pay $720 HOA or can you voluntarily pay 10 years up front?
If the developer still runs the HOA, can make a deal with them for 10 years of HOA in lieu of the closing cost rebate?

Most closing agents would not allow you to put items outside the norm "like prepaying years of HOA" as closing costs. Its pretty standard what they would allow and what they would now. Of course there are some variations based on the agent you get.
I was in a similar situation a year ago. Short of having the price reduced or paying for points, my only option was to have the realtor write me a check. But that would have been after deducting all his taxes which was around 35%.



Disclaimer: By providing links to other sites, FatWallet.com does not guarantee, approve or endorse the information or products available at these sites, nor does a link indicate any association with or endorsement by the linked site to FatWallet.com.

Thanks for visiting FatWallet.com. Join for free to remove this ad.

While FatWallet makes every effort to post correct information, offers are subject to change without notice.
Some exclusions may apply based upon merchant policies.
© 1999-2017