September 26, 2024
Many first-time home buyers hate the idea of negotiating, haggling, or otherwise trying to adjust the price of the home with a seller. In a seller’s market there’s not much negotiating possible, it’s true.
But when conditions are more favorable for the borrower, negotiating may be to your advantage.
Why Should A First-Time Home Buyer Be Willing To Negotiate With The Seller?
The most apparent reason to haggle with the seller of the real estate you want is to get a lower price. This becomes even more crucial if the appraisal comes back lower than the property’s asking price.
The buyer cannot be forced to close the deal in cases where the home’s appraised value is lower than the asking price. The FHA home loan itself will be issued for the asking price OR the appraised value, whichever is lower.
If your appraisal results are lower than the asking price, borrowers can negotiate with the seller to get a lower price if the seller agrees.
Alternatively, the borrower can pay the difference out of pocket (it cannot be financed).
But the borrower’s third alternative is to walk away from the loan without penalty. You will need to ask the lender what the approved procedure for doing so is, but in essence you cannot be forced to pay the difference out of pocket.
Haggling With The Seller For Closing Cost Contributions
FHA home loan rules state that the seller cannot contribute money towards your down payment.
However, you can still reduce your out-of-pocket expenses by negotiating with the seller to contribute up to six percent of the home’s sales price toward closing costs.
Closing costs are separate from down payment expenses, and the amount you pay for closing costs cannot be considered part of your down payment.
That is why it is so important to negotiate with the seller for those contributions toward closing costs; if the seller agrees, you can take the money you would have used to close the loan and put it toward the down payment.
The seller has a financial stake in the transaction’s outcome, so no contributions or gifts of down payment assistance are permitted.
Remember that state law, lender requirements, and other rules may apply beyond FHA home loan minimums in these cases. Ask your loan officer for more information in these areas before you proceed for best results.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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