Can I Have the Seller’s Pay My Closing Costs?
You’ve probably had friends or family say that they got the sellers to pay their closing costs on the home they bought. You may even heard real estate experts advise this as a way to save money and you’re wondering if its true…the answer is yes…and no. Asking the sellers to pay your closing costs is one of the biggest misconceptions in Real Estate. It is also one of the most confusing, even for agents.
When you ask for the sellers to pay your closing costs its the way you have to ask for it that makes it confusing. If you’re paying with all cash then you can just ask the sellers to pay the closing costs, however if you are getting a mortgage you have to ask for what is called a seller’s concession. A seller’s concession is the only way the sellers paying the closing costs can be written into your mortgage.
This principle works for any dollar amount, so I’m just going to use simple numbers. Let’s say you find a house and you want to make an offer of $195,000 and ask the sellers pay $5,000 in closing costs. It sounds simple enough but you can’t write it in the contract this way. What you have to do is offer the sellers $200,000 and ask for $5,000 back (seller’s concession). Your offer is $200,000-$5,000 seller’s concession = $195, 000 price to seller.
Here’s why its not free money. When you write the offer this way you are technically financing the full $200,000. The $5,000 in closing costs is actually part of your loan and you’re paying interest on it every month.
It can be a confusing concept to understand. The thing that makes it even more confusing is that your real estate agent has to write your offer ($200,000) on the second page of the contract but then they have to write the seller’s concession ($5,000) on the last page of the contract. So sometimes sellers and agents don’t even notice you’ve asked for one.
So why do people even ask for a seller’s concession? Because it is less money out of pocket. For example you may be able to afford the down payment on the house but not the closing costs. This would allow you to buy the house. Or maybe you need some extra money in your account for after the closing to make improvements. Financing may be an effective solution so that you can close and still make the improvements.