During a real estate purchase (sale) one of the most commonly asked questions is who pays the closing costs. The answer is always the same… It Depends. There are closing costs on both the seller’s side and the buyer’s side of a transaction. But who pays them depends on the contract.
Almost every loan out there allows the seller to pay the buyer’s closing costs. However, are they really paying them? Well the answer is yes and no, let’s look at a simple breakdown.
A property is listed for sale – the listing price is $200,000
You are the buyer and you offer $200,000 however you want the seller to pay your closing costs (in this example we will use 3% of the purchase price) your closing costs that the seller will pay are up to $6,000. But the seller actually never sees the $6,000 it comes right off the top of the seller’s proceeds at the close of escrow. (You)The buyers loan would be for the $200,000 minus your down payment and any earnest money. So although the seller is paying your closing costs the proceeds actually come from the funds you financed.
If a seller is wiling to pay the closing costs they would most likely have been willing to accept a lower purchase price. (I am not saying they would pay closing costs and lower purchase price) If a seller will pay $6000 in closing costs, they most likely would have accepted an offer for $194,000 from a buyer that would pay their own closing costs.
Knowing what your true closing costs are is extremely important when writing an offer that includes the seller paying a buyer’s closing costs. Many times the lender will allow a percentage of the purchase price (up to 6% on some loans) to be applied towards the buyers closing costs. If you are allowed 6%, do you really need 6%? If not you would be “leaving money on the table.” Regardless of what percentage you are allowed as a buyer to ask for what is not used does not come to you the buyer. It reverts back to the seller. A buyer cannot receive proceeds from the purchase that they did not pre-pay. So, you could get your appraisal money back for example but you could not just randomly get cash back.
Having a real estate agent that understands various loan products and what is an not is not allowable or necessary can actually give both the buyer and seller a smother transaction and much less frustration. I would love to be your Central Oregon real agent, just reach out to me and let’s have a real conversation.