Chris: if the sellers intent is to reduce his proceeds by $5,000, in order to get FNMA/MI approval you must remove the sales concession from the REPC and handle it outside of closing. did the appraiser flag the 1004 subject-to? Note the concessions in report? if so, a revised 1004 will be required. the seller can’t “pay” the buyer non-financing concessions. handle outside of closing with the same escrow account but funded by seller directly post closing. this requirement has been standard for years. Only on RD loans have I been able to fund escrow from seller proceeds on the HUD-1.
Hi Chris. Legally, lenders and appraisers must be made aware of all the terms of a sales contract. In MOST situations, the seller will often agree to pay some/all of the borrower’s closing costs and prepaid expenses, which leaves that much more in the buyer’s pocket and theoretically helps cover the carpet, etc. This is a common, and completely legal practice. Asking title companies to handle “side” agreements without including them on the settlement statement is not legal and is legally considered mortgage fraud. Not trying to be a downer here, just hoping to help you avoid turning a relatively small issue into a big one. Has the appraisal been ordered, or sales contract given to your lender? If not, the simplest, legalest, way to handle it is to write a new contract, with same sales price, stating that seller is to pay $5000 towards your closing costs and prepaid expenses. As long as the appraiser doesn’t flag the carpeting as unlivable (which would be quite unusual), that’s a legal and effective way to handle your situation. Hope that helps. Ted