Say your lender will allow up to $12,000 credit for non-recurring closing costs. So, to get the edge on a foreclosure property that you really like, you bump up the offer price accordingly and ask for the full $12,000 NRCC credit.

First of all, the offer price is only the offer price — the bank will look at all the terms and a $412,000 offer with $12,000K NRCC is still a $400,000 offer.

Secondly — aka the second problem — the home has to appraise. In some markets, that 3% difference is enough to cause a problem with the appraisal and make it necessary to adjust some numbers. That's one thing if you have that $12,000 in your pocket to bring in, but if you can't afford the down payment and closing costs combined, then you've shot yourself in the foot.

Yes, as we follow last week's topic….there is a down side to non-recurring closing cost credits. There's a limit! While it may sound marvelous to inflate the offer price and get "cash back," the lenders are ahead of you.

Problem 1: Using the $400K purchase with 3% in NRCC example, it's possible that you may not have $12,000 in closing costs.

Closing costs consist of your loan origination fees, title insurance, title company/escrow fees, transfer taxes for county or city, notary fees, appraisal fee, inspection fees, and other odds and ends. If the seller is paying title and escrow, transfer taxes, inspection fees, etc., it is possible that your closing costs will be less than 3%. (Usually closing costs run between 1.5% and 3% the sales price.)

Most lenders will limit the amount of credit you can receive in non-recurring closing costs, so it's good to ask for the limit up front so you end up with the number you asked for. Of course, the purchase contract can be written to incorporate enough NRCC to the buyer's side so the maximum number is reached.

So if you have a tight budget–especially those buyers with an FHA 3.5% down loan–what to do with closing costs? Closing costs are usually 1.5% to 3% of the sales price. They are in addition to the 3.5% (or other amount) you need to put down in order to obtain the loan and purchase the property.

One option is to ask the seller to contribute to your closing costs. Some agents will write in a percentage (ie., 3%) for seller to contribute. Or, a flat number can be requested.

Here's the deal: Say you offer $400,000 on a home and ask for 3% back in non-recurring closing costs. Effectively the seller then nets an offer price of $388,000.

First-time buyers often on a tight budget look at the list price of a home and forget a key point: If you purchase a $400,000 home, it will cost MORE than $400,000 if a loan is part of the package.

Why is this? Closing costs. Lenders will charge a "commission" (broker fee/loan origination fee), various preparatory fees, appraisal fee and then you have the title company. The title company charges escrow fees, notary fees, document preparation fees, and the big ticket item — title insurance. Then you have transfer taxes and fees (roughly $1.10 per $1,000) for the county in which the property is located plus city taxes if applicable.

So that $400,000 home becomes more like a $412,000 home.

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