In Port St. Lucie the majority of the listings are short sales so it’s kind of hard to tip-toe around them when you’re in the market to buy. Many of my customers are purchasing with a mortgage and some are using FHA financing that only requires 3.5% down payment.
It’s common for an FHA buyer to ask for cash back from the seller towards their closing costs. Closing costs can be up to 6% of the purchase price so if a buyer hasn’t saved up the funds to cover the down payment and closing costs their mortgage lender might advise them to ask for money back.
But is this strategy a wise idea when you’re making an offer on a short sale?
Here are some things to consider:
When it’s a short sale, the seller is not giving you the cash back – the cash will come from their lender. Typically you would increase your purchase price to cover the cash back. So, for example, let’s say the asking price is $100,000. You want 6% back so you increase your offer to $106,000. The seller accepts but then it’s also up to their lender to accept.
Here is where the problem lies. I’ve experienced, on more than one occasion, that after waiting for quite some time the lender will accept your $106,000 but they won’t allow cash back. Or they will only allow 3% back. Now what? Do you try to renegotiate? You could have been waiting 4 – 6 months and is it worth it to ask for a decrease in the price since the lender isn’t giving you the cash back? Do you even have the money to cover the difference now that you can’t get it from the short sale lender?
A real-life story:
Moral of the story: Try to save the money up front to cover your down payment and closing costs – especially on a short sale.
It’s okay to ask for the cash back but you need to have a Plan B if the lender won’t allow it in the long run. And you don’t want to wait 7 months to find out that they aren’t going to allow it and have to cancel the deal because you have no money saved!
Do you have a story about bidding on a short sale? I invite you to share it below so that others can learn from your experience.