Buying a house isn’t cheap, and cash flow and income problems can result in a missed opportunity to buy your own place. Plus, getting a mortgage loan has become more expensive in recent years, as the majority of lenders now require a down payment of approximately 5% of the sale price. But this isn’t the only big expense associated with ownership – buying a house also involves closing costs, which can equal 3% to 6% of the mortgage balance.
Having to come up with both closing costs and a down payment out-of-pocket is more than some borrowers can handle. In fact, these expenses alone cause many to put off buying a home. However, if you have money for a down payment, don’t let closing expenses crush your dreams – instead, strike a deal with the seller to pay for your closing costs.
Getting the Seller to Pay Your Closing Costs
Some types of loans require that you pay a percentage toward your closing costs, but in most cases, lenders allow the seller to foot the entire bill. Ultimately, the majority of lenders don’t care where the money comes from – they just want to be paid.
But how do you get the seller to take on this added and often appreciable expense?
1. Pay the Full Asking Price
Understand that home sellers aren’t obligated to pay your closing costs. It’s a nice gesture on their part, and this helps ensure a quick sale. If you’re thinking about asking the seller to flip the bill, get on his or her good side.
When writing your bid or offer for the house, talk to your realtor about offering the full asking price. Sellers expect bidders to offer a lower price for properties. Thus, many sellers pad the asking price to give themselves a little wiggle room. For example, if a seller wants $200,000 for a house, he or she might ask for $210,000. In some cases, the seller doesn’t expect to get the original asking price. But if you were to offer the full asking price and request closing costs assistance, there’s a good chance the seller will jump at your offer and comply with your request.
2. Be Ready to Close
If the seller has already purchased another house and needs to move quickly, negotiate closing costs assistance in your contract and agree to a quick closing. This method works well with motivated sellers who need to get out from under the mortgage loan quickly. Some may be willing to do whatever it takes – even if it means taking a lower profit or even no profit from the sale.
It takes, on average, about 30 days to close on a mortgage loan. But if you’ve already secured your financing and you’re ready to move, you can close on a mortgage loan in as little as two weeks. Get pre-approved before agreeing to a quick closing, and have cash ready for your home inspection and home appraisal.
3. Avoid Excessive Demands
Home sellers aren’t looking to spend a lot of money updating their properties before selling. They prefer to save this cash and put the money toward their down payment on a new place. Therefore, you may be able to get a seller to pay your closing costs by accepting the house “as-is.” However, do request that the seller fix any items that didn’t pass the inspection.
Just realize that if you make excessive demands and request unnecessary upgrades, you may miss the opportunity to receive assistance wtih closing costs. As a rule of thumb, remember that the less a seller has to spend on the property, the more likely he or she will assist with your closing.
4. Meet the Seller Halfway
In some cases, sellers cannot pay your closing costs. Between realtor fees and using the proceeds from the sale toward a down payment on their new home, there’s often little left over.
Rather than let this setback kill the deal, work with the seller to see what they can afford to offer. Determine what you have available for closing, and then ask the seller to pay the difference. For example, if your closing costs total $10,000 and you have $4,000, ask the seller to pay the remaining $6,000.
If you can’t get the seller to pay your closing costs, ask your lender to include all or a portion of the closing costs in your loan. This option is available on FHA and VA loans, but not on conventional loans. For example, if the seller can only pay a small percentage of your closing costs, your mortgage lender can roll some of the remaining fees into your mortgage. Understand, however, that this method not only increases your loan balance, but also your monthly payment.
What methods have you used to convince a seller to pay your closing costs?