Who Pays the Closing Costs?

“Hi, I’m Charlie, the cash-strapped home-buyer! I’m looking to buy a home, but I don’t have enough cash to make the down-payment AND pay closing costs. Can I ask the seller to pay the closing costs??

 

Charlie brings up a great question- an extremely common question as many cash conscious home buyers would love to keep their costs to a minimum.

 

First let me break down the question by explaining that there is no such thing as “THE” closing costs. The costs to purchase a home are broken down and are specific to the buyer and the seller.

 

Traditionally, the Seller of a home is responsible for Documentary stamps, Owners title and Brokerage fees.

 

The documentary stamp tax is a tax the seller pays upon transfer of ownership. The amount varies by county and the amount of the final selling price of the home.

 

The owner's title policy helps protect the new property owner from a previous owner's debts and the cost of title insurance varies by location

 

And the Realtors brokerage fees would be those fees the seller has agreed to pay the listing agent and the buyer’s agent before they listed their home for sale.

 

Likewise, the Buyer of a home is responsible for certain items associated with obtaining financing, prepaid items and their down-payment.

 

Items associated with obtaining their mortgage loan would include the appraisal fee, origination fee, flood certification fee, surveys along with any other loan expenses.

 

Prepaid items would include prorated portions of homeowner’s insurance, flood insurance and taxes. It would also include the monies needed to fund the buyers escrow account.

 

The down-payment isn’t necessarily a “cost”, but it is included as part of the amount needed to close on your loan.

 

Roughly, home buyers will pay between about 2 to 5 percent of the purchase price of their home in closing fees.

 

There are a few options to help keep buyers closing costs to minimum.

 

 

One, you can check out the various down-payment assistance programs available through Workforce Resource, whose website can be found on my website, warrellhomes.com under the resources section.

 

Two, you can take a look at new construction homes. In many cases, when buying a new construction home, and using the builder’s lender, you are able to obtain a credit towards your closing costs.

 

Three, you can ask the seller for a credit, or concession, to help offset the total closing costs.

 

Now keep in mind, any credit you ask for is, in effect, lowering your offer price for the home.

 

Look at it like this:

 

Imagine the home you want to buy is listed for sale at $260,000. You plan to offer $260,000 and ask for a $5,000 credit towards your cost to close. In essence, you’re offering $255,000 for the home. There’s no problem with structuring offers in this way, it’s just important to know the market before putting one together.