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#2267405 - 03/09/22 09:02 PM Disclosing Earned Equity
Jason Ellis Offline
Junior Member
Joined: Jun 2018
Posts: 35
Scenario for a LMIB/LMIT loan:

Borrower has been renting from seller for a number of years. Borrower is now buying the house. Seller sets the purchase price at the current appraised value $172,000. Seller is giving the borrower an "Earned Equity" credit for the rent paid over the years of $117,000. Borrower is applying for a loan for the difference $55,000.

Ignoring any underwriting issues with minimum contribution and such, how do I disclose the $117,000 Earned Equity credit from the seller? The seller credit line is for credits toward closing costs and other costs. It doesn't really fit on the "deposit" line. I am thinking I would disclose it on the CD in Section L on line L.04. And it would be in Section N on the Sellers Transaction side.

I am also having difficulty determining where/if I can disclose it in the Calculating Cash to Close table on the LE? Maybe on the Adjustments and Other Credits line?

I appreciate any opinions.

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TRID - TILA/RESPA Integrated Disclosures Rule
#2267407 - 03/09/22 09:12 PM Re: Disclosing Earned Equity Jason Ellis
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 78,948
Galveston, TX
If this was a rent to own situation, it is nothing but a seller credit.

(v) The total amount of money that the seller will provide at the real estate closing as a lump sum not otherwise itemized to pay for loan costs as determined by paragraph (f) of this section and other costs as determined by paragraph (g) of this section and any other obligations of the seller to be paid directly to the consumer, labeled “Seller Credit”;
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#2267415 - 03/09/22 10:18 PM Re: Disclosing Earned Equity rlcarey
Jason Ellis Offline
Junior Member
Joined: Jun 2018
Posts: 35
This is an affordable housing program. I think it is called Year 16. From my understanding developers get a tax rebate to build affordable housing units in low/moderate income tracts, apartments or single family homes, and rent them to low/moderate income borrowers. After 15 years the developer can offer to sell the house to the tenant, but I don't think that is part of the rental agreement upfront. I am not sure if the developer is required to give the large Earned Equity credit, but this one is.

Thank you for your input. I kept going back and forth between seller credit, deposit, or adjustment.

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