house stuff explained

Below is the email from Terence explaining the current sitch with the house.

As of right now, Bank of America has determined that for the purpose of our deal, fair market value (FMV) is $166,000. 88% of FMV is the lowest “net” amount FHA will allow Bank of America to “net” so that’s the same as the absolute bottom line.

Here’s how that would work with our current deal:
1. 88% of $166,000 is $146,080
2. Contract price: $160,000
3. Concessions: $5,700 in closing costs
4. 6% Real Estate Brokerage Fees on $160,000 is $9,600

$160,000 – $5,700 – $9,600 = $144,700 which is $1,380 less than the absolute bottom line FHA guidelines specify.

There are other fees that further lower this number that I’m not able to calculate at this time such as prorated taxes that the seller is responsible for and HOA prorations and that kind of stuff.

What this means is if they hold us to their absolute bottom line, we either have to raise the sales price by $1,380 or lower the closing costs by $1,380 in order for them to net their $146,080.

Technically, they have the right to force us to lower our closing costs to 1% of the mortgage amount which would amount to be $1544 in closing costs because per FHA guidelines, they allow 1% of the mortgage amount to be used towards closing costs provided the buyer is using FHA financing. In that case, they would be netting $2,766 above their minimum net. Unfortunately that doesn’t mean we can drop the sales price by another $2,766 because the contract specifies $160K as the agreed price.

So where we stand as of right now is we’re waiting for the attorney’s office to put together a preliminary HUD-1 settlement statement which shows all the numbers, what is owed, what the prorations are, etc. that ultimately shows the bottom line for both sides of the transaction. Once drafted, they send that in to Bank of America. A negotiator/Loss Mitigator there will review the statement and either approve it or come back with the demands of us having to make the numbers work by either increasing the sales price or lowering the closing costs. They may also invoke the 1% rule. They may not too, it really depends on the negotiator’s mood that day. I know that sounds horrible but that’s the way it is.

How long this can take is a crapshoot. It can be done next week or in 3 weeks or longer before we get an approval. Hopefully it’s sooner rather than later. Because the Seller has hired that attorney’s office to represent them and interact with the bank, the other agent and I don’t have any right to contact the bank directly as they won’t speak to us since we’re not formally authorized. Only the attorney’s office is. So we’re both in contact with them and at last contact they’re on top of it and have established a good open channel of communication with the bank so hopefully that expedites things.


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