Asking Seller to Pay Your Closing Costs
Most potential homebuyers underestimate the lengths that some people will go to in order to sell their homes.
It's all about effective negotiating when it comes to buying a home and real estate experts agree that more than the selling price of the home is usually up for negotiation.
Some people will ask the people who are selling them a home to cover the cost of new appliances, while others will request that the seller cover the cost of any repairs that need to be done but neither of these requests are nearly as lucrative as asking the seller to pay for closing costs.
Closing costs are expenses encountered by all buyers and sellers when they go through the process of transferring ownership of a property from one person to another. These costs are over and above the price of the property and they normally include an attorneys fee, taxes, an origination fee, an amount placed in escrow, and charges for obtaining title insurance and a survey.
Closing costs will differ depending on where you live in the country but they are always expensive.
Some times fees will be split between the buyers and sellers.
When Closing Costs are Split Buyer Usually Pays For:
- Homeowner's insurance (a year's worth must be paid for at the time of the home's closing)
- Home inspection fees
- Title insurance
- Escrow fees
- Transfer taxes
- Any lawyer fees
When Closing Costs are Split Seller Usually Pays For:
- Real estate commission
- Loan payoff charges
- Title insurance (occasionally)
- Some necessary repairs
Most lenders and real estate agents are able provide estimates of what the costs will be for buyers and sellers.
Typically closing costs end up being between two and six percent of the mortgage amount. This means that if you invest in a $200,000 home you could pay as much as $12,000 in total closing costs so it's definitely beneficial to have someone covering these costs for you.
The most expensive charge incurred at closing, and therefore the most crucial to have covered, is the loan origination fee. Many lenders will charge points to originate a loan and in most cases one point is equal to one percent of the loan amount. Therefore the origination fee for a $200,000 mortgage could cost up to $2000.
There are countless benefits of having the seller cover all closing costs especially if you have little money saved up and a below average income.
Benefits of Having the Seller Cover the Closing Costs:
- You will have more cash available to put into a down payment
- The need for mortgage insurance can be reduced or eliminated
- You can achieve better price break points in the loan to value ratio and possibly qualify for a lower interest rate
- The extra money can be put towards home repairs or repayment of other loans
Typically getting the seller to pay for closing costs can be worth much more than any reasonable reduction that seller will give in the price of the house, especially if the asking price is already close to that of other comparable homes in the area.
Another benefit of having the seller cover the closing costs is that these costs are virtually non-tax deductible so it will really never benefit the buyer in the long run to fork over money for closing costs if they don't absolutely have to.
If sellers are adamantly against paying for closing costs there other financial incentives that buyers can request. One example is to ask the seller for a cash credit at closing.
Sometimes lenders will put restrictions on the amount a seller can credit to a buyer. It's usually no more than six percent of the selling price of the home.
Remember, not all sellers will be happy to agree to give you credit at closing. This is mainly because when you ask for a credit, you are in effect asking them to lower the price of their property and therefore their profit from the sale might be significantly less.
Another request that prospective homebuyers can make to sellers is to ask them to provide funds to temporarily buy down interest rate on the buyer's mortgage for the first few years.
Having a seller buy down interest rates can really benefit buyers who have low incomes, little savings and are having a hard time qualifying to get a mortgage in the first place.
If sellers are absolutely not willing to negotiate or offer any financing incentives, there are still a few options for homebuyers who want to lower closing costs as much as possible.
The first option is for homebuyer to choose a no-point, no-fee loan or mortgage. This option, if the buyer can qualify for it, will definitely eliminate a significant amount of the closing costs.
Buyers should also check with all lenders to see if their application fees are refundable if they are turned down for their mortgage. This should be done before the buyer agrees to sign anything. Another important thing to check out is to ensure that all junk fees like document-processing charges are waived.
It's also smart to check with the lender to see if they absolutely need a new property survey to be done. Sometimes lenders will accept an updated version of the previous owner's property survey if that owner had owned the property for a significant amount of time. This option can really cut costs for the new homeowner.
Buyers should keep in mind that some closing costs like legal fees, points, appraisal will sometimes be negotiable so it's always good to try to bargain before deciding on which professionals should help you with your transactions.
When it comes to buying real estate it is extremely important to be aware of all your options and to know which things might be negotiable.
Asking a seller to pay for closing costs might be something that doesn't occur to the majority of homebuyers, but if the seller is willing it is an incredible way to cut down on the cost of homeownership.
The most important thing to remember is that there is no harm in asking. You never know what lengths a person will go to in order to sell their house unless you ask.
