Understanding seller paid closing costs
This specific topic has to be the most confusing one for both sellers as well as buyers. Many sellers feel that it is ridiculous that a buyer needs help with closing costs because they paid their own closing costs when they purchase the home. Many buyers feel that seller paid closing costs are something that the seller should just automatically give them. I thought we could look at both sides of the fence so you can understand it from both perspectives.
If you're a seller, in today's world seller paid closing costs are an essential part of selling your home specifically if you are in a home under $300,000. Many buyers today that are purchasing a home have good credit as well as really good jobs. What they don't have is a lot of cash reserves. Specifically if they are an FHA buyer. Most FHA buyers have the 3 1/2% down to purchase the home. It's the loan with the lowest amount of down payment required aside from a DVA which is a loan for veterans.
The thing to keep in mind as a seller, is that without this concession, many buyers will not be able to purchase your home. Prices always negotiable so you should pay more attention to your bottom line. I'll give you an example, let's say your house is listed at $250,000 and a buyer comes in and offers you full price for the home but is asking you to pay 3 1/2% of the sales price for buyers closing costs or $8750. That would be a net to you of $241,250. One of the things you could do depending on the price range and the value of your home is come back at them and say we will sell it to you for $258,750. And you're covering their closing costs. Now your bottom line is higher but you're still paying their closing costs which allows them to get into the home. The only objection I believe the seller should have with paying closing costs if it's cutting into your bottom line is another expense. However if you can work around it through negotiation it benefits both parties.
If you are a home buyer it's important to understand that seller paid closing costs are not just a given. This is real dollars coming out of the seller's bottom line. So you have to be respectful of that when you're asking for that money. The other piece for you to understand is that even though it's called the seller paid closing costs, it's really a legal way for you to roll those closing costs into your loan. You will be paying interest on those closing costs for the life of the loan so it's really not a freebie, it is still an expense. If you are using an FHA loan putting down 3 1/2% down payment, there's nothing wrong with asking for seller paid closing costs. It's just important for you to understand that it affects the seller and they could come back with a negative response.
In the past many home buyers would put down 20% and pay all of their own closing costs. So if you are purchasing a home where a seller has lived for 30 years, that's probably how they did it. Since they have not sold a home in all of that period of time, this can be a new concept to them. The best advice I can give you is to be aware of that and do it in a respectful manner the same way you would asking for any concession.
Buyers as well as sellers have to keep in mind that a successful negotiation is of benefit for both parties. There's always a way to make it a win-win for everybody.