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.

If I can't get a loan from a bank, what are my options to purchase a foreclosure or for sale by owner?

Without a bank loan, you have very few options. A foreclosure/by owner really isn't one of them.

Your options are: owner financing, private financing, or rent with an option to buy. In slow or depressed markets you may be able to find some owner-financing options, but overall they are few and far between. Some owner-financed homes may be offered that way as they are not in a condition to qualify for a standard loan.

Private loans are quite difficult to come by due to the economic pressure, and they come with high price tags–8 to 12% interest rates.

I'd recommend working on getting your credit and cash situation to a point where you can get a loan from a bank.

This is short-sale speak for a market analysis. A Broker Price Opinion is ordered by a bank that is considering the acceptance of a short sale offer. A broker or independent agent will evaluate the home (in person) and check comps in the area to provide feedback to the bank on their opinion of the current market value. This is done before a bank will approve the short sale and respond to prospective buyer.