Seller paid closing costs or seller paid loan costs as often termed, are simply that; closing costs that the seller pays. Although the seller has their own closing costs, the largest of those paying a real estate fee, the seller may often be willing to pay in full, or partially contribute to paying the buyers fees as well.
HOW MUCH ARE TYPICAL CLOSING COSTS FEES?
Closing costs fees range, maximum limits are generally 3% on conventional loans and up to 6% of FHA loans. Most FHA buyers I work with generally ask for 3.5-4.5% of the sales price for their closing costs and that generally covers everything. With that FHA up front mortgage insurance premieums are included in the loan amount as they can not be paid by the seller.
WHY WOULD THE SELLER PAY BUYER FEES?
This is probably one of the most fielded questions I receive from sellers irronically, not buyers. It does take a little explaining, but in most cases the seller does agree some instances may require contribution. Given the target market of your buyer, many buyers may need the costs paid by the seller. If you have a first time buyer scrambling to come up with their downpayment to equal the minimum down of 3.5%, any extra costs associated potentially could make it so they do not have their downpayment. Any buyer can ask for costs no matter if you are trying to come up with your 3.5% down payment, 5%, 10% or even if you are tyring to get to 20% down in order to avoid mortgage insurance.
When a buyer makes an offer on a home, the Realtor will do a net sheet so that the seller knows what their final check at closing will be, or in today’s market sometime how much money they will need to bring to closing. This is a general estimate based on title fees, real estate fees, state and county fees, and pending all payoffs the seller has for any mortgages, tax leins or judgements. If the seller is going to pay for the buyers closing costs this will be looked at on the net sheet and accounted for. If the seller is presented with two offers at the same time, a buyer may want to go above list price of the home if they are going to include closing costs. An example below depicts two offers and although the offer price of Option B is lower, the net price when closing costs are included still is higher and the seller would potentially lean toward that offer.
Sales Price $150,000
Buyer’s Closing Costs Paid $5,000
Net to Seller $145,000
Sales Price $148,000
Buyer’s Closing Costs Paid $0
Net to Seller $148,000
WILL BANKS & MN SHORT SALE LISTINGS PAY BUYER FEES?
Buyers almost assume ANY seller will pay all their fees when in fact some banks will limit the closing costs paid to 3-3.5% of the sales price. I have not had any issues with a bank not willing to pay at least some costs.
Remember, Ultimaltely YOU Are Paying The Costs!
They are called seller paid loan costs, however they are essentially rolled into your mortgage or financed over the term of the loan. I tell my buyers when negotiating that it is nice to have the seller pay the loan costs, but that is money they are paying when it comes time to sell a home.
Remember, if you purchased a home for $200,000 and the seller paid $7,000 in seller paid loan costs, they probably woud have taken a similar offer at $193,000 with NO loan costs being paid by the seller. When you go to resell, those “seller paid loan costs” magically reappear and hurt your bottom line, not to mention the extra interest you paid over the course of time you lived in the home. For example, with a 6% interest rate, if you lived in your home for 5 years and financed $7,000 of loan costs, your payments would be around $35 more per month X 60 months. That would total $2,100! Makes you think if there is a way to come up paying your own closing cost, TRY.
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