Who pays for closing costs when you purchase a home or when you sell a home all depends on what type of loan the buyer is getting. First-time buyers are often shocked when they realize how much closing costs can actually be. Closing costs are the various fees, charges, and taxes to purchasing the property they can easily add up to thousands of dollars. Depending on the loan, some homebuyers can actually roll these fees into the purchase price of the home saving themselves thousands of dollars up front. But who typically pays these closing costs and where do the fees come from?
Closing costs include a wide range of mortgage-related fees. They could be fees for originating the loan, points on the loan, taxes, insurances, premiums and even down to courier costs from taking paperwork from one place to another. All loans except for VA loans require the buyer to pay the closing costs. The seller can have certain costs to pay as well or the buyer could ask the seller to pay these closing costs as an incentive for buying the property. Sellers are typically responsible for the real estate agent’s commission if applicable, any title transfer fees, prorated property taxes, and any utilities.
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Just like any other negotiable term or price in a real estate transaction, closing costs can also be negotiable on who pays for them. The buyer can ask the seller to pay for these costs and is referred to as a seller concession. However, this could change the way your offer is accepted. If the seller knows they have to come up with an additional $2000-$4000 for closing costs, it could make them hesitate in accepting the offer. In a buyers market, sellers are more apt to pay for closing costs but in a seller’s market, they know they could probably get a buyer that won’t require them to pay these costs.
There are also limits to what a seller can do. On an FHA loan, for example, the seller’s concession is limited to just 3% of the purchase price. This means that a seller cannot pay more than 3% of the sale price of the home in closing costs for the buyer. In a VA loan situation, the seller is allowed to cover all of the buyers closing costs and these loans also have the benefit of a no down payment for the buyer.
In a conventional loan situation, it’s important to talk to your mortgage lender about who pays for what. There can be a lot of different factors that can alter how much a buyer or seller pays. It could depend on where you live in the type of lender you use. Some lenders allow the seller to pay 6% of the sale price and others may have a limit of just 3%.
The important thing is to ask about closing costs before you finalize with a lender or finalize on a home purchase. It’s important to know all the costs upfront so that you are not surprised at the closing table when you have to come up with an extra $2000. Understanding all of the processes and asking questions throughout the transaction will help you feel more prepared and more confident about your purchase.
For more answers to your questions on closing costs or really any type of home loan questions feel free to contact me at any time. I’m here to make this process as easy as possible! I love to answer all your questions so you feel confident and excited about your home purchase.
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