Hey, Kyle here with winthehouseyoulove.com.
Today, we're talking about are seller paid closing costs a real thing?
A lot of people get this mixed up.
They just think the seller's going to cover closing costs for them, but
it doesn't work exactly like that.
So three things we're going to learn here:
Number one, if the seller can cover all of your closing costs, number two, the trick
to getting the seller to actually accept paying for your closing costs, because it
takes a little bit of negotiation there.
And then finally, an easy to read chart that's going to show you exactly what
you can ask for in closing cost credit.
So let's just jump into this.
So first let's talk about the seller and the drama of it all.
So often what people say to me when I asked them about, you know, what are
you going to do as far as closing costs?
Because you have your down payment and closing costs that
create your total cash to close.
And so they say, well, the seller is going to cover that.
Well, the problem is how much, how much is the seller going to cover?
Because in a contract you can't just write, the seller is going
to cover all closing costs.
It doesn't work exactly like that.
I'll show you how it does work here at the end.
So what happens is that money comes directly out of the seller's pocket.
So we have to keep this in mind.
So for instance, if you're purchasing, let's saw a $300,000 house and you
ask the seller for $5,000 in credit towards your closing costs the
seller is actually only going to be receiving a net offer of $295,000.
So when we ask for closing costs, we ask for a specific dollar amount
or a specific percentage, and that money comes directly from the money
that the seller would be getting.
So even though you might be offering $300,000, the seller is actually
getting a net offer for their home of $295,000 after they give a
credit towards your closing costs.
Okay.
So.
Obviously, this is not super attractive.
If you come to a seller and you say, Hey, I want I'll offer your 300,000
for your house, but I want you to give me $5,000 back they're going to think,
we'll, that's $5,000 that we wanted that they would have had in extra
money if they go with an offer with somebody not accepting closing costs.
So your offer becomes a lot less attractive when you ask for closing costs.
So you need to be cautious of this, especially in a really competitive market.
So one trick that you can do, to get the seller, to actually view this
net number a little bit differently is actually to kind of wrap closing
costs into your purchase price.
So you used to be able to, before the housing crash actually wrap
closing costs in your mortgage.
So, you used to, you know, if you had a $300,000 house, you could get
a loan for like $310,000 and have $10,000 to go towards closing costs.
And sometimes you could use it for like, repairs and furniture.
And it was that's what led to the housing crash that doesn't exist anymore.
So you can't wrap it into the loan, but you can wrap it into the purchase price.
So I'll show you how this works.
So what you can do, let's say this $300,000 example, the sellers
listing a home for $300,000.
So what you could do is offer $305,000 and ask for $5,000 in closing cost credit.
So what does that do?
That makes the seller oops so we offer $305,000 and ask for $5,000 back.
And what does that do?
That gives the seller a net of $300,000.
That's exactly the amount that they wanted.
So you ask a little bit above to wrap those closing costs into
the purchase price so then you can finance them with the loan.
So what this does is it's easier for the seller.
But we have to be very careful because we need to make sure it appraises.
Right?
So for instance, let's say a, it was a $300,000 house, but let's say we
ask for $10,000 in closing costs.
Well, if we offer $310,000, the home now has to appraise for $310,000.
If it doesn't, then we won't be able to take all those closing costs
and put it into the purchase price.
So something you need to be very careful of.
And if you're going to do the strategy, talk with your realtor about doing
this and make sure that there's a high level of confidence that the home
is going to appraise for that higher amount, because if it doesn't, then we
need to talk about how do we actually handle this appraisal coming in lower.
Alright, so now a quick word from our sponsor.
So the simplest thing you can do is compare rates from multiple lenders.
So the following is an advertisement from our sponsor, Credible, which
is a mortgage comparison website.
At Credible, you can check pre-qualified rates at no cost to
you because multiple lenders are competing on Credible's website you
can shop for the best loan for you.
So it's pretty simple.
All you have to do is go to Credible's website, enter a
few pieces of information.
It takes only a few minutes, and then what you'll be able to see immediately
is pre-qualified rates from lenders so you can choose the best loan option.
Credible's prequalification process is easy.
It takes only a few minutes and checking the rates you're prequalified for
doesn't affect your credit score at all.
So if you want to learn more about finding pre-qualified rates through
Credible, what you can do is go to the link in the description to shop for
loan options that are going to be good for you and compare the best ones.
And for full disclosure, Credible does pay Win The House You Love an advertising
fee when you fill out a prequalification request and to make the legal team
happy: it's Credible Operations, Inc.
NMLS 1681276, not available in all states.
So let's go ahead and jump into how to make this offer attractive.
Okay.
Again, because we're talking about how much does the seller
actually want to get out of this?
We want closing costs and the seller wants to walk away with the
money that they were expecting.
So we have to be able to create the best of both worlds with those two scenarios.
So, first we need to look at how attractive is our
offer to begin with, right?
If we're asking for closing costs, We need to make sure that we're
either evening out the net that the seller is going to get, or the rest
of our offer needs to be attractive.
So maybe we need to have an earlier closing date, or we need to ask for
less contingencies in the contract.
There are ways that we can set up our offer to be more attractive to the seller
even if we're asking for closing costs.
Because if the contract that the seller gets is all leaning towards
being more favorable to us, the seller has a less likely of a chance to
actually want to go with our offer.
Alright.
So ask your real estate agent, how can make this offer more attractive if
we're going to ask for closing costs?
Also, this is huge.
This is going to depend a ton on your local market.
So if you're in really high cost areas, if you're in these crazy
areas of California or, you know, high, competition areas in Florida or
Tennessee or, or wherever you're at, just know that asking for closing costs
might not be something that's very customary in that specific local market.
Most of the time high competition markets don't have a lot
of closing costs going on.
Because the markets are so competitive people with more
favorable offers are going to win over people asking for closing costs.
However, if you're in more of an average market somewhere, for instance,
like where I'm at Dayton, Ohio, then closing costs are super common.
I would say probably 70% to 80% of the loans that we do have some sort of
closing costs concession from the seller.
It's just incredibly common in this area, but it might not be
in your specific local market.
Now this is also going to depend on the market energy that's going on.
So if it's a buyer's market or a seller's market.
So in a sellers market, the sellers have the control, meaning that it's going
to be difficult to get as much closing costs as you want, because there's a
lot of buyers bidding on the same home.
One home might have several offers.
So asking for closing costs makes your offer kind of stack a little
bit lower amongst other offers.
Now on the reverse, if it's a buyer's market, then the buyers have the control.
And you might be able to ask for more closing cost credit in a buyer's market.
So then also, you know, just like the Beyonce song, if
you'd like it put a ring on it.
Okay.
A lot of times people want to fight over these small amounts.
And I see this happen all the time, where, where somebody writes an offer and then
they get a counter offer back from a seller and they don't accept it because
there's a difference of $1,000 or $3,000.
And I get it, you know, money is money.
Money is expensive, which is a stupid phrase.
But if there's a home that you love, put the action behind it to show
that you actually love it because a home will go away if you're not
willing to put the offer up for it.
Okay.
I see people lose out on homes, literally over a thousand dollars.
At that point, we're just playing with egos and we probably need to take a,
take a breath and say, you know what?
We actually really want this home.
We're willing to pay money for it.
So if that's you just, just recognize it.
If it's a home you want.
Be willing to pay for it.
And if you're not willing to pay for it, then don't put as much stake in
it that home, emotionally upfront.
Okay.
Now, closing costs are negotiated as a percentage of the purchase price.
Going back to the first bullet point, you can't just write in the contract
"seller pays all closing costs".
It doesn't work like that because if you're using financing, there's
a maximum amount that the seller can actually pay and you have
to fit within those guidelines.
You can't just receive however much money you want from the seller.
So we're going to cover that here in just a second, but first let's slow down
and let's have a CalmMoment, just like you want to slow down in the mortgage
process and in the home buying process, we're going to slow down in this video.
Okay.
So, if you're bidding on a home, especially in a market right now where
nationally, it seems like every, every market seems to be in a seller's market.
It can be really frustrating if you need closing costs help.
If you need closing cost help from the seller, it's hard because you're
putting in offers and you're most likely are getting beat out by other people
who aren't asking for closing costs.
So, first, I just want you to recognize that if something doesn't
work out right now, Odds are it's going to work out in the future.
Often what I see happen is buyers will put in offers on homes and they get
super disappointed, but then one finally comes along that they get an accepted
offer on and they're able to close it.
And that home was so much better than the initial homes that they were offering on.
There's just this interesting thing that seems to work in this world where, when
we get told no, when things don't work our way, it usually is for the best.
And it's difficult to accept that, but sometimes we just have to take a
moment and say, you know what we're accepting the circumstances happening
or accepting that this, this option, this opportunity isn't working out.
And we're okay with that.
We're going to move forward and see what plan we can create, moving
forward without that specific one.
So just know if, what if the home you're looking at right now, isn't working out.
If someone else puts in an offer on it or you keep getting beat
out, I promise you there's going to be a better one coming ahead.
You just need to wait for the timing to be right for that perfect home to show up.
Okay.
So let's talk about the max seller credits you can get with each loan type.
So conventional loans are a little bit different.
They have a couple extra guidelines here.
So the max seller credits on a conventional loan.
If you're putting less than 10% down, the max you can ask for is 3%.
So for instance, on a $200,000 house, the max seller credits
you can ask for is $6,000.
Okay.
If you're putting 10% to 15% down, you can ask for up to 6% of the purchase
price towards your closing costs.
If you're putting 25% or more down, then you can ask for up to
9% towards your closing costs.
On FHA loans, you can ask for up to 6% of the purchase price.
On VA, it's up to 4% and on USDA, it's up to 6%.
And then if you're looking at a jumbo loan, jumbo loans are for
people who are purchasing above the conventional loan limit.
And which right now is hovering around the mid $400,000 range.
If you're using a jumbo loan, each lender has specific guidelines for jumbo loans
and just ask your lender if you're using one of those loans, how much you can ask
for in seller credits, normally it hovers around the lower side, like 2% to 3%.
Again, it depends lender by lender.
All right.
So, if you want to learn more about closing costs, I have a video that
is the complete guide to home buying closing costs right over here.
I'm going to walk through real life loan estimates, like loan estimates
I've given to clients that have closed on those specific homes and
show you real life numbers and go through those documents with you.
Thanks so much for watching.