Asking the Seller to Pay for the Buyer’s Loan Closing Costs?

Throughout Minnesota it is common for the buyer to ask the seller to  pay closing costs–or part of the loan closing costs–when making an offer. It is especially common with FHA, VA or other similar government backed mortgages. 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 at the time of closing.

What Are closing costs?

Closing costs are fees for the services, taxes and insurance required for the lender to evaluate the home you’re buying and process and finalize your mortgage.

Some closing costs like property tax, a mortgage broker’s commission and homeowners insurance premiums, are self-explanatory. Other closing costs will include the loan origination fee, possibly a mortgage discount point fee, title insurance, state mortgage tax and other costs.

How Much Are the Mortgage Closing Costs?

Overall the total closing costs are less than 3% to 4% of the amount borrowed. If you were getting a loan for $200,000 the amount of the total closing costs should range from $6,000 to $8,000. During the mortgage process, the lender is required to give you a Loan Estimate within three days of applying for a mortgage. This will give you an estimate of your closing costs.

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. Closing towards the end of the month will reduce the amount of pre-paid expenses that might be due at closing versus the beginning of the month.
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
3. Save hundreds and even thousands of dollars in closing costs. Don’t be afraid to negotiate your closing costs with you lender or to shop around.
4. 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 eliminate them completely in some cases.

How Much of Loan Closing Costs Should the Seller be asked to Pay?

Lenders may allow for the seller to pay up to 6% 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 more closing costs then what a buyer needs, the buyer looses out on a possible negotiated lower selling 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