What Closing Costs Can the Seller Pay?

Many buyers (particularly first-time buyers) are short the cash they need for the down payment and closing costs. One way to overcome this cash shortage is for the seller to pay a portion or all of the closing costs. How much the seller is allowed to contribute depends on the type of mortgage loan.

Conventional Loans
On a conventional loan, the seller can only pay non-recurring costs. These do not include pre-paid items or items to be paid in advance (such as mortgage insurance or hazard insurance). The seller's contribution is limited to the amount the buyer is putting down. Guidelines do vary with each lender so be sure to confirm the amounts with the lender you choose.

VA Loans
On a VA loan, the seller may pay all or a portion of the buyer's closing expenses. Sellers who agree to pay the closing costs often put a ceiling on the amount they will pay.  There can be a limit on this amount so again, check with the lender you are working with for your loan.

FHA Loans
On a FHA loan, the seller may pay all the closing costs. However, the buyer must make a minimum down payment in the property. The 3 percent can be from the buyers own funds or from a family member's gift.  Ask your lender for guidance on  the different rules.

Asking the Seller to Pay a Portion or All of Closing Costs

The seller's willingness to contribute to closing costs is often driven by market conditions and the way in which the request is made to the seller.

As your real estate agent, I will help you prepare an offer that balances the purchase price and request for closing cost assistance with the dynamics of the current marketplace. For instance, in a seller's market we may increase the offered purchase price to offset the request for closing cost assistance if we feel the home will appraise and the sellers are opposed to paying the closing costs for you.  We are slowly coming out of the market where sellers were not asked to pay closing expenses for the buyers.  Buyers were so happy just to have won the bid that they were more than willing to pay their own.  We are seeing this change back to the seller paying a portion occurring slowly as time goes by.

Remember - When you ask the seller to pay a portion or all of your closing costs, in essence you are financing the closing costs. This is because the seller's contribution is typically offset by a higher purchase price. And it is this higher purchase price that is financed with your mortgage loan.