Buyers are asking Sellers to contribute to their closing costs in many cases. Here is a guideline of what the Seller is allowed to pay for the Buyer:
- Tier one: 90-95% LTV seller can pay up to 3% of sales price
- Tier two: 75.01-90% seller can pay up to 6% of sales price
FHA – Up to 6% of sales price
VA – no seller restrictions on closing costs except for the VA funding fee
184 (Native American) – Up to 6% of sales price
RD (Rural Development) – no seller restrictions on closing costs
Sellers MAY NOT contribute towards the Buyer’s down-payment (VA and RD financing require no down-payment). The down-payment can be gifted
Buyers’ closing costs include several one-time and recurring fees, but the big hit they take at closing is escrowing their property taxes and home-owners’ insurance. Buyers’ closing costs also include fees associated with their loan, title fees, inspections and appraisal – see a more exhaustive list.
When I list a Tulsa home for sale, I always mention the possibility of Seller-paid Buyer closing costs as an expense for which to be prepared. Yesterday, a Seller responded, “what if I don’t want to pay it?”
My response was that if a Buyer ASKS for assistance for closing costs, they probably can’t purchase your home without it. With FHA financing for example, they may have only saved up for the 3.5% down-payment and have little funds remaining for closing costs. Sellers need to focus on the amount they will NET from the sale – and not be judgmental about the Buyer not saving up more funds to purchase a home.
Seller-paid Buyer closing costs
And there are ways to balance it out. On a $200,000 home, if a Buyer offers $190,000 and asks for $6,000 in closing costs, they are essentially offering $184,000. The Seller simply needs to agree to the $6,000 closing cost expense and counter at $195,000, 198,000 or list price. This all depends on how flexible the Seller is able to be and how long the home has been on the market. A sensible Realtor will help you negotiate what’s in your best interest.
At the end of the day, the Seller wants to SELL his/her home, and the Buyer wants to PURCHASE it. The mix of negotiations – and how we reach our mutual goal needs to be flexible.
The amount a Seller contributes to a Buyer’s closing cost is not paid out of pocket. The Seller’s proceeds will be applied to the Buyer’s side of expenses at closing.
If you are interested in buying or selling a home in the greater Tulsa area, please do give me a call! 918-852-5036
Content written and published by Lori Cain.