Seller Paid Closing Costs

There are often instances when you may negotiate to have the seller pay some or all of your closings costs, and maybe even your pre-paid items (taxes and insurance paid in advance).

For instance, you may be buying your home with 100% financing. That means the lender will provide financing for 100% of the purchase price of the home. Notice that this only addresses the purchase price of the home, and it doesn't address the costs incurred to close on the transaction. There will be many people working on your transaction: your mortgage professional, the lender's underwriter, the escrow company, the title company and the appraiser will all spend time and energy putting together this transaction for you. The cost of this work is above and beyond the price you are paying for the house. You also need to fund impound accounts to pay for your property taxes and homeowner's (hazard) insurance on a monthly basis.

You may ask the seller to pay these costs for you. In that event, the sales price of your new home will be increased by the estimated amount of these costs, and the seller will contribute this same amount towards your closing. The seller still nets the same amount, and your closing costs are paid.

Here's an example of a 100% financed purchase with the borrower paying the closing costs. Please note this is only an example:

Price of house:	$250,000
Seller paid closing costs:	$0
Adjusted price of house:	$250,000
Loan amount:	$250,000
Net amount due to seller:	$250,000
Closing costs & prepaid items:	$5,000
Amount due from borrower:	$5,000

Now, let's look at an example where the closing costs are rolled into the purchase price of the house:

Price of house:	$250,000
Seller paid closing costs:	$5,000
Adjusted price of house:	$255,000
Loan amount:	$255,000
Net amount due to seller:	$250,000
Closing costs & prepaid items:	$5,000
Amount due from borrower:	$0

This example shows how a borrower can have the closing costs paid without having to pay for them at closing. Additionally, the seller doesn't get any more money in this structure. Of course, the appraisal would need to support this value, and not all lenders or programs will allow the seller to contribute to the borrower's closing costs.

As mortgage professionals, we will present you with the different options available and help guide you to the right financing program to meet your individual needs.