Seller Concessions (Can The Seller Pay My Closing Costs?)

Certified Mortgage Advisor
NMLS 1701021
Published 
July 2, 2019

Seller paying your closing cost? How?

How can you get the seller to pay your closing costs or at least some of them, if not all? I think a lot of times people don't realize when they're looking at buying a home and getting a loan that they can have the seller actually pay some of those closing costs.

FAQs

So something to consider when we do this is what does that do to your negotiation? What does that do to your loan? And ultimately what's the best way to set it up so that you get the house that you want, but then you also have. The loan setup that you want as well.

Why do seller need to pay closing cost

So the main reason why we would have the seller pay, some of our closing costs is that sometimes closing costs can be a little higher than we'd want them to. And our closing costs. We have things like the appraisal title fees. We have taxes, insurance fees charged by the county. So there are a lot of different parties coming in and working together to close on your loan.

So sometimes those closing costs begin to add up. They normally run somewhere between two to 3% of the purchase price. So when you're putting money down, you're also paying some closing costs on top of that. So one way that you can bring down your total cash out of pocket is to have the seller pay some closing costs.

This is how we do it

So this is how it works. When you write an offer with your realtor, you want to have that conversation with whoever you're working with and let them know that you want to get some seller concessions. So the wait seller concessions or work is it's a percentage of the purchase price that goes towards your closing costs.

So let's run an example really quickly. Let's say for easy math, you're looking at a hundred thousand dollar house. So the house is listed at $100,000. And you want some seller concessions, so you could ask for about 3% in seller concessions. So we take a hundred thousand. 3%, and that gives you $3,000.

So what you did is you wrote a contract saying we're going to offer a hundred thousand dollars. The seller is going to give us $3,000 towards our closing costs. And in most areas that should just about cover the majority of your closing costs. It will not cover your down payment, but it will cover the majority of your closing costs.

How will it affect your loan?

Now here's the issue that we run into when you asked for seller concessions, that's a less attractive offer to the seller of the house that you're buying from, right? Because if we look from their view you offered them a hundred thousand, but then you immediately asked for ask them to give you $3,000. So they're getting 97,000.

Less attractive offer

Your offer is a little bit less attractive if you ask for seller concessions. So this is often how we build seller concessions into the mortgage or how we build in closing costs into the mortgage.

Let's do the trick

So let's go back. Let's say there was a house listed for a hundred thousand dollars. So it's listed for a hundred thousand. Now you need $3,000 in closing costs paid for, but the seller doesn't want to give up 3000. What we do is we put it into the purchase price. So it gets wrapped into the loan. So it's listed at a hundred thousand, but you offer 103,000. So you're giving the seller $103,000 through the loan, and then they're going to take that 3000 and give it right back to you at closing.

So the seller gets the money that they want. You get the money that you want, or you basically took those closing costs and finance them into the lungs. So this is a very common way that realtors can help you get the silver concessions that you want without destroying your negotiation power. So all in all, how do you know if you even need this as a strategy.

Have conversation with your mortgage advisor

Number one, you first need to have a conversation with your mortgage advisor. They should be giving you very accurate numbers, telling you what your payments are. Your rate is in your total cash out of pocket. So you can make the decision on if you need to ask for seller concessions or not.

What I do is I do a total cost analysis for all my clients, so they can see all of those numbers upfront, and then we can make the decision. Do we need to ask for any credit at closing for those seller concessions? If so, then what I do is I talk with your realtor and let them know how we want to set up the deal on the closing costs side, so that everything is comfortable for you.

What is the downside?

Now, the downside to seller concessions is that you're paying a little bit of interest on that money, even though you're getting it from the seller and it can feel like it's cash up front that money is being put into the loan amount because instead of asking for 3000 to pay your closing costs, you could be asked for $3,000 less in the purchase price.

So that's where you have to make the decision on what are your goals now and in the future, are you comfortable with paying a little bit more upfront so that you can save more in the future? Are you going to be in this house a little bit more short-term to where you want the upfront costs lowered, and you're willing to have it built into the loan.

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