Asking the Sellers to Pay for the Buyer's Closing Costs?

Throughout Utah it is very common to ask the sellers to pay part or all of the buyers closing costs when making an offer.  It is especially common with FHA or similar type financing.  When the sellers pay part or all of the buyer's closing costs it allows the buyer to purchase the home with less out of pocket expenses.  

What Are closing costs?

Closing costs are broken down into 2 catagories.  There are non recurring closing costs such as escrow fees & loan fees.  These are one time fees.  There are also recurring closing costs such as pre-paid property taxes & pre-paid insurance and interest.  A portion of these fees are paid in escrow and again paid each year.

How Much Are the Closing Costs?

Overall the total closing costs are less than 3% of the amount borrowed. If you were getting a loan for $300,000 the amount of the total closing costs should not be more than $9,000.

Are There Ways to Reduce Closing Costs?

Outside of asking the buyer to pay for closing costs there are a few ways to reduce your closing costs when purchasing a home.  

  1. Part of the closing costs are pre-paid interest.  All buyers must pay in advance the interest on the loan for the remaining days of the month that they close in.  Should an escrow close on the first of the month the buyer will have to pay all of the interest for the entire month whereas if they close on the last day of the month the interest paid will only be for 1 day reducing the closing costs needed to close. 
  2. Shop your mortgage.  All lenders very in the closing costs they charge and by comparing lender fees in addition to interest rates, you can often save hundreds and even thousands of dollars in closing costs. Don't be afraid to negotiate your closing costs with you lender.
  3. If you are willing to trade a slightly higher interest rate for reduced fees, you can usually reduce the needed closing costs substantially and it is possible to eleminate them completely in some cases.

How Much of My Closing Costs Should I Ask The Seller To Pay?

Most lenders will allow for the seller to pay up to 3% of the purchase price towards the buyer's closing costs but just because that is what they allow do not ask for more than you need.  If the seller agrees to pay $9,000 of the buyer's closing costs but the buyer only need $6000 the buyer looses out on $3,000 that could have been used to negotiate a reduction in the purchase price. So always know your closing costs in advance of making an offer if you are going to ask the seller to pay your closing costs.


With over 15 years experience selling residential real estate, please call Scott Rozier at 801-471-9443


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