Quick Question on Closing Costs

[Kyle-OH 0]

Ok My main focus here is CA's.......

 

 

I know that I am out of the deal as soon as I assign the contract but I just had a few questions.....

 

1.If the T/B exercises the option to purchase the property, Does the homeowner have to supply the "Official" Purchase & Sales Agreement or does my L/O contract that I supplied act as the final contract?

 

2. The reason I am asking is because if I tell all my homeowners that they will not have to pay closing costs if the T/B exercises the options where should that state that at? My L/O Agreement or The Purchase and Sales Agreement?

 

3. How are closing cost structured? What if the T/B does not have the money to pay closing costs?

[Adam King (MI) 1]

1.If the T/B exercises the option to purchase the property, Does the homeowner have to supply the "Official" Purchase & Sales Agreement or does my L/O contract that I supplied act as the final contract?

No, you'll need a purchase agreement. Depending on the tenant/buyer's financing, it could be a simple one page agreement. If the bank has an issue, a standard real estate agent's "state" PA will do just fine.

 

2. The reason I am asking is because if I tell all my homeowners that they will not have to pay closing costs if the T/B exercises the options where should that state that at? My L/O Agreement or The Purchase and Sales Agreement?

The only closing costs the seller would pay are transfer tax and half of the closing company/attorney's fees. Have it written in the option that the tenant pays for all of the title company fees. It's only ethical that the seller pay their own transfer tax.

 

3. How are closing cost structured? What if the T/B does not have the money to pay closing costs?

They are mostly getting 100% financing because they'll be doing a refi. Not to mention the game plan would be for them to be saving up cash for that in the first place. However, if they need to do a full purchase during their time to exercise the option, then they will have no choice but to either come up with the money or have the seller hold a second. But, the bank MUST know and MUST okay everything in writing.

Adam

[joshril 0]

1.If the T/B exercises the option to purchase the property, Does the homeowner have to supply the "Official" Purchase & Sales Agreement or does my L/O contract that I supplied act as the final contract?

No, you'll need a purchase agreement. Depending on the tenant/buyer's financing, it could be a simple one page agreement. If the bank has an issue, a standard real estate agent's "state" PA will do just fine.

 

2. The reason I am asking is because if I tell all my homeowners that they will not have to pay closing costs if the T/B exercises the options where should that state that at? My L/O Agreement or The Purchase and Sales Agreement?

The only closing costs the seller would pay are transfer tax and half of the closing company/attorney's fees. Have it written in the option that the tenant pays for all of the title company fees. It's only ethical that the seller pay their own transfer tax.

 

3. How are closing cost structured? What if the T/B does not have the money to pay closing costs?

They are mostly getting 100% financing because they'll be doing a refi. Not to mention the game plan would be for them to be saving up cash for that in the first place. However, if they need to do a full purchase during their time to exercise the option, then they will have no choice but to either come up with the money or have the seller hold a second. But, the bank MUST know and MUST okay everything in writing.

Adam

 

I didn't think a PA needed to be signed until the T/B exercises their option... I would think that investor would be out of the picture at that point on a CA. Am I incorrect or missing something here?

[Kyle-OH 0]

I didn't think a PA needed to be signed until the T/B exercises their option... I would think that investor would be out of the picture at that point on a CA. Am I incorrect or missing something here?

 

 

 

Yeh, I think that is what he is saying.. A Purchase Agreement would have to be signed upon the option being exercised BUT like you said you would be out of the picture at that time when doing a CA....

 

 

Now, I did not look at it as a refi. I was looking at it as a regular retail purchase. How does the bank look at L/O's as a refi and not a regular purchase? Is it because the owner occupant has been living in the house for a 1-3 years??

[Adam King (MI) 1]

Now, I did not look at it as a refi. I was looking at it as a regular retail purchase. How does the bank look at L/O's as a refi and not a regular purchase? Is it because the owner occupant has been living in the house for a 1-3 years??

 

Yes, exactly. Many banks will allow a lease option as a refi. Some (most used to) want a land contract showing equitable interest. But the banks are getting VERY flexible now.

 

And yes, the reason there's a purchase agreement in the first place (which you should provide in the beginning to help your seller and buyer) is because the lender will want one. In a lot of cases they will get picky on the PA too. They will want more outlined if it's too simple and doesn't explain much.

So make things simple and do a PA with your LO. That gives the seller everything they needs minus certain disclosures.

Adam

[pilot76180 51]

Ok My main focus here is CA's.......

 

 

I know that I am out of the deal as soon as I assign the contract but I just had a few questions.....

 

1.If the T/B exercises the option to purchase the property, Does the homeowner have to supply the "Official" Purchase & Sales Agreement or does my L/O contract that I supplied act as the final contract?

 

2. The reason I am asking is because if I tell all my homeowners that they will not have to pay closing costs if the T/B exercises the options where should that state that at? My L/O Agreement or The Purchase and Sales Agreement?

 

3. How are closing cost structured? What if the T/B does not have the money to pay closing costs?

 

 

Hey Kyle,

there was a post a week or so ago about rent credits that I replied to where I gave a breakdown of how the rc's are applied, including how it is reflected on the HUD. This goes back to the closing costs as well.

Take a look at that and that may help you.

[<Steve> 82]

Here is the Link

[MichaelC 160]

While what Adam is saying makes perfect sense and can certainly be done, my preference is to take a more hands off approach. When that Assignment Agreement is signed, that's it for me. And there is nothing illegal or unethical about that. I am not one to provide a Purchase and Sales Agreement, nor be concerned over the details of the financing, the closing costs, etc. It's all there in the Option to Purchase Agreement.

[Kyle-OH 0]

While what Adam is saying makes perfect sense and can certainly be done, my preference is to take a more hands off approach. When that Assignment Agreement is signed, that's it for me. And there is nothing illegal or unethical about that. I am not one to provide a Purchase and Sales Agreement, nor be concerned over the details of the financing, the closing costs, etc. It's all there in the Option to Purchase Agreement.

 

 

Yeh, I can see where both of you are coming from...I want to provide the best service for the seller and t/b but I can see where "The more I do, the better chance I have to getting pulled into something I don't want later on down the road".....

[Kyle-OH 0]

Hey Kyle,

there was a post a week or so ago about rent credits that I replied to where I gave a breakdown of how the rc's are applied, including how it is reflected on the HUD. This goes back to the closing costs as well.

Take a look at that and that may help you.

 

 

Here is the Link

 

 

 

Thanks guys

[Kyle-OH 0]

Can someone explain how we can advertise "no closing cost" to seller, if the seller is still paying for half of the closing company/attorney's fees??? I understand they have to pay taxes but anything over and above is "no closing costs" to me...

[MichaelC 160]

Why must the seller pay half the closing company's costs and half the attorney's fees? It isn't required. Each deal is separate and all things are negotiable. So obviously if the seller is paying some of the closing costs you can't say otherwise.

[pilot76180 51]

Can someone explain how we can advertise "no closing cost" to seller, if the seller is still paying for half of the closing company/attorney's fees??? I understand they have to pay taxes but anything over and above is "no closing costs" to me...

 

 

OH! Kyle. Or is it Kyle...OH! Kidding. Anyway, I can't speak for MC, as I do things differently. First of all, what I do is legit. HA!!! Kidding MC. But going back in my memory, it seems that MC likes the "no closing cost to seller". We do CA's, and our goal is to get them all to finance. So I don't advertise "no closing costs to seller". Besides, with a CA, the rent credits are utilized for the closing costs anyway, so the seller is already paying that much. We also have the seller pay title and the other seller fees, which add up to about 1.25% give or take.

With the CA, if the t/b didn't get rent credits, they'd have to come up with the 3-4% out of pocket to close, and 99.875% won't have it, so they can't close.

Also keep in mind, there are FHA non-allowables that the seller has to pay for FHA.

So to sum it up, we don't push the "no closing costs" with our CA's.

[joshril 0]

Do you guys give a receipt for the option money collected?

[MichaelC 160]

Do you guys give a receipt for the option money collected?

You can. But it's also reflected in the Option to Purchase Agreement.