If you are buying your first home, you might be looking for ways to be able to pay for your dream! You have several options… you can use a mortgage program that does not require a downpayment, you can get the Seller to help with closing costs, you can rob your 401K account, and you can get a gift. We are going to tackle Sales Concessions: Seller Paid Closing Costs with this post.
We work with many first time homebuyers, and the vast majority of the buyers purchasing a home under $400,000 in North Carolina ask the seller to pay for some or all of their closing costs.
For more expensive homes, you don’t normally see as many Seller paid Closing Costs unless it’s a “New Construction” neighborhood, and the builder is paying for “upgrades” and / or some combination of Closing Costs.
Sellers are generally fine with paying some of your costs, but they will consider how much it costs them to do so. Let’s look at an example of how this works:
A home is listed for $150,000. You offer $145,000 and ask the seller to pay for $5000 of your closing costs. The seller sees this as a “true” offer of $140,000 since they will not get to keep the $5000 they pay toward your costs.
When you structure your offer, decide what “true” offer price you want the seller to see. What if the home is perfectly priced at $150,000 and the seller won’t come down at all in price? You’ll need to offer $155,000 and have the seller pay $5000 in order for your offer to net the seller $150,000.
The $5000 is considered a Sales Concession – and there are caps on the amount of Sales Concessions allowed, based upon the type of mortgage you are applying for.
There are also cases where a Realtor “gives” money from their commissions back to a buyer at the closing. Can that money be used for the Downpayment on a mortgage? No. That money is considered a “sales” concession, just like any money that the Seller is paying, and can only go towards paying closing costs.
The total FHA Sales Concession allowed back (meaning from the Agent and from the Seller) can not be a combined amount in excess of 6% of the Sales Price. We recently had a situation where a Seller was paying for a Buyer to get out of their Lease, and paying all closing costs.
In that situation, the $2500 the Seller was paying for the Rent, and the $4200 the Seller was paying in Closing Costs were added together as Sales Concessions. The problem we ran into was with the AGENT giving the Buyer additional funds. So in that situation – you have to be careful!
Can I Roll the closing costs into the mortgage?
There are ways, and times, when it makes sense for us to pay some of your closing costs… however, on a purchase transaction we will not be “rolling in” closings costs to the mortgage. This term literally refers to borrowing more than just the mortgage costs… while we can add items like the PMI on a FHA, VA or USDA loan – can not loan you more money in order to cover the attorney fees (for instance).
We can Pay some of your closing costs! For instance, we generally do not quote our mortgage interest rates with an origination fee. We quote a zero point, zero origination fee mortgage rate to save you cash out of pocket. This means that you have a slightly higher interest rate, and we absorb the cost. If the Seller is not going to negotiate the Closing Costs, this might be another way to pay for closing costs.
Can I Get A Gift for the closing costs?
Yes! Documenting gift funds can be a little tricky, however, you CAN get a gift for the Closing Costs. Again, the gift must come from a “non-interested” third party. Meaning your folks, or someone else that we can prove has a relationship with you but is NOT on the contract, can give you a gift that will cover the closing costs on a Government Loan.
However, the family member giving the gift must state, in writing, that the gift does not have to be paid back. If, out of the goodness and kindness of your heart – you DECIDE to pay the money back, that’s besides the fact. The important thing is that there’s not a “second mortgage” made with your parents holding the note on your home in NC. (more on borrowing from your family to buy a house in NC)
On a Conventional Loan, there are requirements that state a certain portion of the transaction must come from YOUR savings.
2018 Update Seller Paid Closing Costs
In 2018 there are so many buyers looking for homes, and so few properties on the market, Seller paid Closing costs are almost non existent. We now tell folks that you should have at least 2.5% of your sales price set aside for your portion of the closing costs.
Because there are too many people looking for a home, and not enough of them on the market – the chance of a Seller taking an offer where they need to pay closing costs is slim (I’m just being honest with what we are seeing right now). The money for the closing costs can be a gift (or a series of gifts) or it can come from the sale of a bass boat (for instance), but you can’t get an unsecured loan for it (not coming from your credit card).
If you are a first time home buyer looking for low cash out of pocket ways to buy a house – and for whatever reason, the folks you just talked to said you’ll never be able to get a mortgage the way you want to… call us. We know all of the programs, we do USDA Home Loans, NC Housing Financing, FHA, Veteran’s Home Loans – the whole gambit. We can help, and we’ll give you straight up answers. Steve and Eleanor Thorne, 919 649 5058, we have the best rates – and we know the mortgage business!