Smart Borrower Blog

Seller-Paid Closing Costs

Dec 19th, 2007 @ 11:00 AM by MortgageMentor

In a slow real estate market, sometimes it isn’t always about negotiating price.  Don’t forget to put the screws to the seller when it comes to your closing costs!  Depending on your area, closing costs can run approximately 2 to 3% of your purchase price.   This can be a significant burden for many borrowers.

Conforming mortgage guidelines typically allow up to 3% of the purchase price to go towards closing costs for loan to values above 90%.  Six percent for loan to values less than 90%.  So if you are buying a $300,000 home for a primary residence, you could get up to $9,000 from the seller to go towards your closing costs and maybe even more depending on your loan-to-value.

While most lenders will allow the credit to cover all of the closing costs on the second page of the Hud-1 settlement statement, some lenders only allow the credit to cover Non-Recurring closing costs which are lender, title, attorney, and one time taxes on home purchases (not property taxes).  Prepaid interest and tax escrows may not be allowed.  For this reason, it is important you and your Realtor work closely with your mortgage broker or loan officer to determine the appropriate amount of seller credit needed for closing costs.

Finally, it is important to note that the credit must cover all closing costs.  For instance, you cannot have closing costs of $5000, receive a credit of $6000 and pocket the $1000 difference.  The closing costs credit should also be called out on the purchase contract and disclosed to the underwriter prior to closing.

 Happy negotiating!

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