The 2016 FHA Property Tax Proration Sellers Concessions Guidelines were updated when the recently released FHA 4000.1 Handbook came out towards the end of 2015. This was an update to the original FHA 4001 Handbook which in reality needed a facelift of sorts, and it got it by ways of new and updated guidelines up and down FHA Loan Rules and Requirements. What the 2016 FHA Property Tax Proration Sellers Concessions Guidelines states is that in states such as Illinois, where property taxes are paid in arrears, the property tax prorations can be used towards the down-payment of the home that is to be purchased. As a clarification to this rule, yes, you can use the property tax proration for your down-payment, however, you still need to show the minimum 3.5% required FHA down-payment in your bank account, or the loan will not get approved. Let’s look at the numbers: On a home with a $200,000 purchase price, the minimum 3.5% down-payment would be $7,000 and this $7,000 needs to be verified by underwriting or the loan won’t get a clear-to-close until there is $7,000 in the bank account. Let’s say that this home is located in a state where property taxes are paid in arrears, and the proration to close is $5,000. The net of this is all that will be due at closing of the loan, so $2,000 is all the borrower will need at closing even though they will have to show $7,000 in their account. The 2016 FHA Property Tax Proration Sellers Concessions Guidelines also states that if there are excess funds from the property tax proration after the down payment has been covered, these left-over funds can also be used for closing costs as well. However, closing costs can’t be offset until the entire 3.5% down-payment is covered.
The 2016 FHA Property Tax Proration Sellers Concessions Guidelines also allows for sellers to offer seller’s concessions that can be used for the buyers to cover most or all of their closing costs. Per the FHA Handbook 4000.1, FHA allows for 6% of seller’s concession credits to be offered to the buyer of their home. These concessions cannot be used towards any of the down-payment and must be applied to closing costs. Closing costs would include but not be limited to: loan origination fees, title charges, attorneys fees, inspection fees, or any other third party fee that might occur. If the buyer uses the seller’s concessions to cover all their closing costs, what they can do with the remaining credit is buy-down their interest rate to a lower amount. If all of the seller’s concession isn’t used, then this amount is refunded back to the seller at closing, so it is in your best interest to ask for as much as you can and use all of it!
As you can see, there are many different ways under FHA and the 2016 FHA Property Tax Proration Sellers Concessions Guidelines for you to purchase a home and may little to no money out of pocket. If you get a property tax proration for taxes in arrears that can cover your down-payment and also get seller’s concessions to cover your closing costs, you can purchase your home with $0 out of pocket. You will have to show your 3.5% down payment, but if you can do that, you are good to go. If you are trying to get a loan with little to no money down, give me a call ASAP at 888-900-1020, email me at email@example.com, or visit my website at www.loanconsultants.org.