Q&A: Who Pays for Closing Costs?
Posted: June 22, 2015 by Coldwell Banker River Valley
Our family is beginning the search for our first home. We’ve heard that closing costs are expensive, and that sometimes the seller will pay them. How often does that happen? Is it OK to ask the seller to pay closing costs?
You’re right: closing costs can be spendy. Transferring ownership of a house involves all kinds of administrative steps—you’ll be amazed at the stack of papers you get to sign—each of which comes with a price tag. The buyer mostly pays fees related to the mortgage loan, title, and deed, along with some property assessment fees. The seller isn’t just walking away with full pockets, however. Sellers pay their selling agent a 5 to 8 percent commission on the sale of the home. They may also pay for a home warranty or any repairs deemed necessary by the home inspector.
Yes, you may ask the seller to cover closing costs. First, however, consider three questions:
- What is the general vibe of the real estate market in the area you’re shopping? If it’s a seller’s market, that means there are many potential buyers in an area with fewer houses for sale. The sellers, then, have more leverage in negotiating. A buyer’s market is saturated with houses for sale with only a few buyers. In a buyer’s market, you have a better chance of negotiating to have the seller pay your closing costs. Right now in the River Valley, there are more buyers than sellers (see our post on competing in a seller’s market).
- How long has the house been on the market? This may give you an idea of the seller’s level of motivation. A homeowner who is eager to sell may be more willing to cover at least some of your closing costs.
- Lastly, ask yourself how much you want this particular house. Asking the seller to cover closing costs is a little risky. If a seller receives multiple offers on a property, and only one of those offers asks them to pay closing costs, that will be the first offer they toss out the window.
A good Realtor can help you investigate the market and explore your options. Ultimately, however, the decision of whether to ask the seller to cover closing costs is up to you. If coming up with the extra money to cover the costs yourself is not realistic for you right now, you can also ask your lender to tack closing costs onto the total loan amount. This increases your mortgage loan, but not much.
Closing costs should be part of early conversations with your lender so you know what to expect and what is expected of you. Some types of loans, for instance, come with limitations on how much a seller can contribute at closing. The best advice is simple: find a Realtor and a lender with proven track records in the industry, ask a lot of questions, and keep your end goal in mind.
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