Who Pays for Closing Costs When Selling a Home?
Who Pays for Closing Costs When Selling a Home
When you get a mortgage there are closing costs involved. On average, closing costs run between 2%-5% of the purchase price. Who pays for closing costs when selling a home? However, the buyer is not the only party that must pay fees at closing. Sellers must pay for both their real estate agents and the buyers’ agent’s commission that is typically 6% of the sales price. It really depends as to who pays for closing costs when selling a home on both parties’ agreement.
Rolling Closing Costs into the Loan
Usually, you cannot roll your closing costs into the loan except in the case of USDA loans. Mortgage loans have a maximum allowable loan-to-value ratio (LTV ratio). Your loan plus closing costs, minus the down payment cannot exceed the LTV limit. For example, An FHA loan has a maximum LTV ratio of 96.5%. You are not able to get an FHA loan for more than 96.5% of the sales price. FHA requires a 3.5% down payment bringing the LTV to the maximum limit, so you cannot roll closing costs into the loan. The same applies to all other types of mortgage loans, except USDA loans. You can roll closing costs into a USDA loan as long as the property appraises for more than the sales price.
Paying Commissions to the Real Estate Agent
Closing costs for the seller come in the form of real estate commissions paid at the end of the transaction. When you hire a realtor and put your home up for sale you agree to pay 6% in commission which is split between the buyers and sellers agent. 6% is the standard fee in most areas of the country, but can be more or less depending on where you live. Some real estate agents and brokers may negotiate and charge less than 6%, but it’s unlikely. Since they really only get half of the commission, most good agents will not want to work for less than 3%.
Also Read: Buy and Sell a Home at the Same Time
Sellers can Pay the Buyers’ Closing Costs
Getting a seller to agree to pay your closing costs is a tough sell. Especially, when you consider that they are already paying 6% of the sales price in commission, they will not be happy about losing even more profit, that is if they have any to give. A tip to negotiating for the seller to pay closing costs is to offer to purchase the home for a higher amount if they agree to pay a certain amount of your closing costs. As an example;
Let’s say you’re going to make an offer on a $200,000 home. You can offer $206,000 with $6,000 in seller contributions you can use to pay your closing costs. The extra $6,000 price amounts to a couple of bucks increase in your payment, but significantly lowers the amount you need to bring to closing. Any seller contributions need to state in the purchase agreement. The amount of seller paid closing costs you’re allowed to use varies depending on the type of mortgage loan.
Maximum Allowable Seller Paid Closing Costs by Loan Type
FHA Loans – 6%
VA Loans – 4%
USDA Loans – 6%
203K Loans 6%
Conventional Loans – 3%
Sellers Can Pay for Upfront FHA, VA, and USDA Fees
Most government-backed home loans have an up-front fee. Seller contributions can be used to the up-front fee.
FHA Loans – An FHA mortgage requires an up-front mortgage insurance premium of 1.75% of the loan amount. The seller can pay the entire amount if seller contributions are not enough to pay 100% of the up-front fee they cannot cover any part of it.
VA Loans – VA loans require an up-front funding fee of 2.15%-3.3% of the loan amount. Sellers’ contributions can cover any amount of the funding fee up to 100%.
USDA Loans – USDA guaranteed loans require a guarantee fee of 2% of the loan amount to be paid up-front. Seller contributions can cover these costs.
How to Get Lower Closing Costs
Closing costs vary based on several factors. The lender you use, the price of the home, the type of loan you get, even your credit score can affect the amount of closing costs. Increase your credit score – Get a copy of your credit report and dispute any errors with the credit bureaus. If you have high credit card balances, pay them down below 15% of the art limit to maximize your score.
Compare loan offers – When you apply for a home loan your loan officer will give you a loan estimate that clearly breaks down the various fees, interest, and closing costs. Speak to at least 3 different lenders to see if they can give you a better deal.
****************************************************************
YOUR HOME SOLD GUARANTEED OR WE’LL BUY IT!*
To discuss the details of this incredible option, call directly at 561-500-5747
It’s simple, Seller and The Stampini Team must agree on price and time of possession.
**conditions apply. CALL FOR DETAILS**