Big Win! With Kyle Bergquist
Puget Sound Real Estate: Big Win!
As commissions and the real estate industry evolve, Fannie Mae and Freddie Mac addressed a major, relatively under the radar potential issue this past week: Whether seller paid closing costs towards a buyer’s agent commission count against that buyer’s allowable Interested Party Contribution limit. (For the record, I know what I’m saying here, and that was tough for even me to read Haha)
Ok. REWIND! Fannie Mae and Freddie Mac have long allowed for sellers to pay for buyers’ closing costs, but only up to a certain percentage of the purchase price, and variable depending on how the property is being purchased or how much down payment the borrower is putting down. Here’s the matrix:
Thus, for example, a first time buyer putting 5% down on a $300,000 primary residence condo was allowed to ask for up to 3% (or $9,000) in seller paid closing costs. Now, with the median purchase prices we enjoy here in the Puget Sound region, rarely does a buyer hit their “IPC” cap, but with smaller purchase prices it can be a thing. Anyway, what if that buyer needed $7,500 in closing costs covered by the seller AND had signed a buyer-broker agreement for 3%, but that condo was only paying 2% to the buyer’s agent? That’s a $3,000 difference that the buyer is potentially contractually responsible for, which would then mean that the buyer is asking for $10,500 towards closing costs ($7,500 towards the actual closing costs + $3,000 for his agent’s commission). Now at $10,500 being requested from the seller, we’re over that 3% maximum. So is this allowed? Can we go above our Interested Party Contribution cap if a portion of what we’re asking for is simply to pay our agent’s commission? The answer is fortunately yes, as clarified by Fannie Mae and Freddie Mac this past week – Big Win!!!
To be fair, Fannie Mae and Freddie Mac mostly just clarified one of the guidelines in their 1,199 page selling guide (aka, the underwriting guidelines lenders need to ensure they meet on each and every loan they eventually want to deliver to Fannie Mae or Freddie Mac), but the clarity felt like a big win in a somewhat uncertain time. In their statement issued earlier this week, Fannie and Freddie noted that “Fees or costs customarily paid by the property seller according to local convention are not subject to these financing concession limits.” Awesome! Thank you!
Take it Home
Buyers have had the option to ask for seller paid closing costs for a long time. Whether the buyer wants the seller to pay for closing costs so that they can keep more money on hand for moving in, or if they want the seller to pay for closing costs because something came up on the inspection and now a buyer needs to budget for a repair post-closing, it is not rare for buyers to ask sellers to pay some of their closing costs. However, with buyer-broker agreements being signed in the beginning stages of homebuyer house-hunts these days stipulating what commission the buyer agrees to pay their agent, there was a big unknown if any shortage not paid for by the seller would count towards the buyer’s seller paid closing cost cap. Fortunately it does not, and we can move on with our lives : )
SOURCE: Kyle Bergquist
