by Sean Hess (Sean@StAugTeam.com), Broker and Manager for St. Augustine Team Realty (www.StAugustineTeamRealty.com). Join us on Facebook.
Getting around closing costs can be tricky.
Getting Around Closing Costs
You may have enough to make the down payment on a house, and based on your income you may qualify for a loan. But once you factor in the closing costs it might put you in a position where you can’t afford the house.
Or let’s say you have enough for a down payment and closing costs, but it wipes out your entire savings.*
If you find yourself in that situation you may be able to ask for the seller to pay for your closing costs.
“Is this really possible,” you gasp, “someone else pay for my closing costs?”
Of course it’s possible, you just have to ask.
Let’s say you want to buy a house for $140,000, but in order not to wipe out your savings you need $5000 in closing costs.
So you make an offer of $145,000, and in the terms of the offer you put in something like “Seller agrees to pay $5000 in buyer closing costs and prepaid closing costs.”
It’s as simple as that, but there are a few caveats.
The first is that you are going to pay really close to list price or even over list price to get the seller to do this.
The seller has you over a barrel, you see. If you want to buy a house, you need him to pay the closing costs. He’s not going to give you a low price and closing costs.
The second thing to consider is that the home has to appraise.
In order for the seller to give you back the closing costs, the house has to appraise for the higher amount. In the example above the house would have to appraise for $145,000.
If it doesn’t appraise then you go back to the drawing table.
Let’s say the home appraises for $143,000. The seller might accept the $143,000, but in order to preserve his bottom line he may only agree to pay for $3000 in closing costs (meaning you have to come up with the extra $2000).
In theory the seller could still give you the full $5000 (it’s his decision), but typically sellers tend to overvalue their home no matter where it sells at.
In the above example it would be normal for the seller to start thinking that he could have sold his house for $145,000 without paying the closing costs (even if it was only priced at $140,000 to begin with). He would start thinking that he’s getting ripped off somehow by paying the closing costs.
He would think this even if the home had been on the market for six months, and even if you were the only person who viewed it during that whole time, and even if you were the only person who made an offer on it. This is typical seller behavior.
Whatever the decision, it will take you and the seller working together to make it happen.
And that’s why you need we Realtors: it’s our core role to help you negotiate these things out.
*You want at least six months of mortgage payments saved up as a safety net in case something happens. You do not want to move into a new home with an empty bank account.
Need to buy a home with the seller paying your closing costs? Just email Kate Stevens, Broker Associate. She’s my partner at St. Augustine Team Realty, (904-377-2276), or just email me, my info is at the top.
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