In addition to the down payment, home buyers must usually bring additional funds to the closing table. The additional money is needed for cover the various costs of closing the sales transaction. Home buyers can reduce the amount of money required at closing by allowing the seller to pay a portion of the closing costs.
Closing costs paid by a home buyer effectively increase the price of the acquired property. Home buyers who obtain a new mortgage typically cover the cost of loan origination fees. An appraisal fee or inspection fee is usually paid by the buyer. However, the responsibility for the payment of closing costs can be shared by both the buyer and seller.
When your purchase offer is accepted by a seller, the contract should specify which party will pay for each closing cost. Each type of home mortgage has its own limit on what percentage of closing costs can be paid by the seller. If you have already gained approval for a mortgage, you can craft your purchase offer to include what you consider to be an appropriate seller contribution.
Fannie Mae is the government-sponsored enterprise that purchases home mortgages from lenders. Conventional loans purchased by Fannie Mae must conform to a certain set of standards. For home loans with a loan-to-value ratio greater than 90 percent, Fannie Mae allows the seller to pay closing costs of up to 3 percent of the sales price.
If your mortgage is guaranteed by the Federal Housing Administration, the home seller is allowed to pay a greater portion of closing costs. With an FHA mortgage, the seller can pay closing costs of as much as 6 percent of the purchase price. The closing costs paid by the seller may include the mortgage insurance premium that is required at the outset of an FHA loan.
With a mortgage guaranteed by the Department of Veterans Affairs, the seller may pay for the appraisal. The seller can also pay the funding fee required up front, as long as the total concessions of the seller do not exceed 4 percent of the loan. A unique requirement of VA loans is that the buyer is not allowed to pay for a termite inspection, unless the mortgage is to refinance the property.
Each home seller is likely to be different in their willingness to pay closing costs. The most effective option might be to apportion closing costs between buyer and seller. Contact a real estate firm for assistance in locating a suitable home for sale.