House on top of a Calculator

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:

I had a client waiting to buy a short sale for 7 months. Bank of America, the short sale lender, came back and said that they would only allow $2000 towards closing costs with a purchase price of $107,000. Or the buyer could accept no cash back with a purchase price of $105,000. The buyer opted for the $107,000 with cash back. The caveat was that even though Bank of America negotiated the deal they still had to get approval from their “investor” – the person who owns the loan. After waiting another month we found out that the investor wouldn’t allow the $2000 cash back and the option of going back to $105,000 was not allowed! Luckily this customer had the money to cover the $2000.

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 more questions about buying a house in Port St. Lucie? I’d be happy to help you. You can call me directly at 772-485-3214 or fill in the contact form by clicking here.


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.

Posted in: Blog, Buying a House     (0 comments)

About the author

Sarah Taylor
As a licensed broker associate since 2008, Sarah is also a Florida native selling real estate in her home town, Port St. Lucie.

Leave a comment