Can the Seller Pay part or all of my closing costs?

Can the seller pay all or part of my closing costs?

I get this question a lot.

What I generally seek to help people understand is that this terminology is a little misleading. My seller’s often balk at the idea of “paying for someone else” to buy their home. Buyers are often misinformed by lenders as to what’s really happening when we ask a seller to pay some or the entire buyer’s closing costs.

Big Money, No Whammys!

First of all, let’s explore a couple of terms. There is a difference between DOWN PAYMENT and CLOSING COSTS. Closing costs are those fees associated with obtaining your loan. Most loan programs will allow certain closing costs to be paid by the seller and in SOME loans, such as VA Loans, they REQUIRE the seller to pay certain things. DOWN PAYMENT is the money the bank expects you to come out of pocket with to put down on your house. This is NOT payable by the seller but in many instances it can be “gifted” from a friend or family member with the right documentation that shows you are not required to pay it back. For FHA loans, 3.5% is required down payment, but FHA also allows up to 6% seller contribution to closing costs.

Every situation is different but when you ask the seller for closing cost help, you need to look carefully at how much you ask for. You might ask for 6% assistance, but if the payable items only total 4.5%, you’ll not be getting that extra 1.5% to use elsewhere. So why would you want seller contribution to your closing costs? It’s quite simple really. While the way it is worded is that the seller is “contributing” to your closing costs, the way it really comes out is that you’ve basically “financed” that money into your loan. The seller netted less and you paid more than the seller received, so that’s where the idea of seller contribution comes from, but ultimately, you’re basically borrowing that money along with your mortgage.

Cash on Hand

By doing this, you’re deciding that you would rather have CASH on hand now and pay over time for your closing costs. With rates at all time lows, borrowing this money is pretty painless. It might cost you $20 or $30 a month extra on your payment to borrow an extra $5000 or $7500 but ultimately you don’t have to come up with that money AND your down payment at closing. Should you do this? That’s really up to each individual but in many cases, it makes sense and it makes getting into a home more affordable.

About Ron Tarvin, Broker/Owner

Ron Tarvin is a Broker/Owner of Texas Choice Realty and has been a licensed real estate agent for over 10 years. Ron's experience goes beyond that of a real estate agent as an active investor out of state for several years before moving to the Houston area and becoming a licensed real estate agent and ultimately Broker. Ron lives in the Katy TX area with his wife of 129 years and two daughters (19 and off at college, and 8). While not having a ton of time for hobbys with two kids going every which direction, Ron does love the ocean, scuba, computers, games and tea parties with his 8 year old daughter! Texas Choice Realty was formed on the basis that real estate is LOCAL and most of the large companies that are selling real estate are doing so on a national and international set of rules. Texas Choice Realty was conceived to be light, quick and effective at selling in the LOCAL real estate market while still embracing technology and reaching out to the many people relocating to our area every year. Texas Choice was also formed with the agent in mind. Ron saw how much money the traditional brokers were charging agents that work hard for their money and thought that because of the localized focus and lower overhead, Texas Choice would attract HIGH QUALITY, HIGH PERFORMING agents who wanted complete control of their business to best serve their customers. Larger chains often do not consider the client, who is the home buyer or home seller, and what THEIR needs are. The agent, with Texas Choice Realty, is free to best meet the needs of their clients because, as a broker, I don't pretend to know what EACH client wants! It's a great situation as agents are happier and do more business and home buyers and home sellers get the BEST service possible!
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