In real estate transactions, there are times when a buyer does not have all of the cash that is required to cover both the down payment on the property and all of the closing costs. To circumvent this issue, the seller will often agree to pay certain parts of the closing costs, which can vary widely. The mortgage loan will determine how much the closing costs are and how much the seller is permitted to pay. However, it is important to keep in mind that closing costs are normally the responsibility of the buyer.
Types of Loans and Closing Costs
- Conventional Loans – The seller is only permitted to pay non-recurring costs in conventional real estate loans. Any pre-paid list items or items which are paid in advance (for example: hazard insurance) are not allowed to be paid by the seller. The contribution of the seller is limited to the down payment a buyer can pay. For example, if a buyer can manage to pay 10 percent or more for a down payment, the seller is permitted to pay up to 6 percent toward the closing costs. However, a seller can only contribute 3 percent toward closing costs if the buyer can only pay less than a 10 percent down payment.
- VA Loans – The seller is allowed to pay all of the closing costs on a VA Loan, while the buyer is no required to pay anything toward the down payment and closing costs. A family member can help to pay the buyer’s portion.
- FHA Loans – Similar to the VA Loan, in an FHA Loan, the seller can pay all of the required closing costs. There is, however, a minimum 3 percent investment from the buyer required in FHA Loans, whether it covers the down payment, closing costs or any pre-paid line items. Also similar to the VA Loan, a family member can gift the buyer’s portion toward the costs.
Asking the Seller to Help with Closing Costs
Typically, the seller’s contribution is offset by increasing the purchase price, which is factored into your loan. Often, the seller’s willingness to work with a buyer and contribute to closing costs will hinge on where the current housing market conditions stand and how the seller asks them.
Call An Expert
An Oklahoma City real estate lawyer who is experienced in closings can help to draw up an offer which balances the request for assistance with closing costs with the purchase price, according to the marketplace dynamics. Contact the Robles Law Firm at 405-232-7980 for more information.