Hey there, I’m Marcie Billen with Ruya Team Realty and Keller Williams Mulinix here in Norman, Oklahoma and I’m your guide to help you navigate the world of real estate here in Oklahoma. In several posts before, I’ve mentioned some seller paid closing costs or the possibility of closing costs paid for by the seller, if you’re purchasing a home. That’s what I wanted to cover in today’s blog.
What are seller paid closing costs?
What are seller paid closing costs? Well first of all, what are closing costs, in general? There are several sections of fees on your closing costs estimate that are broken down. Of course, you’re going to have the title company, which is where we close on houses here in Oklahoma. In other states, it may be called escrow, but we typically use the word title company and title representative to explain that.
Other fees, like if you’re getting a loan, then you’re going to have some lender fees because they charge money to close that loan for you, and then you’ll definitely have prepaid costs if you’re getting a loan as well. Prepaid costs are insurance, taxes, and interest that you have to pay up front in order to close on the house and those are for your lender to make sure that you have reserves for that. So, yes, it does cost more than just a down payment to actually purchase a home.
If no one has walked you through the overview of the home buying process, you may want to check out this video which is the overview of the home buying process as I typically explain in person.
How much can buyers ask sellers to pay?
How much can a seller pay for when it comes to closing costs whenever you’re purchasing a house? That’s the question, right? How much money can you get out of a seller? Well, if you’re getting a VA loan or an FHA loan, then you can actually get the seller to pay up to 6% of the total purchase price. Now, that’s not expected of the seller necessarily; rather, that is the law – like that’s the most that a buyer can get from a seller if they’re getting a VA loan or an FHA loan. As a home buyer, you’re not going to need six percent, most likely, of the total purchase price.
Six percent of $200,000 I mean, we’re talking about $12,000 here. Typically, your closing costs on a $200,000 house in Oklahoma is going to be anywhere from $6,000 – $8,000. Now you ask “Why is it so varied? Why $6,000 – $8,000?” Well, what really makes that change is the prepaid cost. Of course, lender fees and title fees make a difference as well, but those generally don’t vary as much as prepaid costs, which is like how much insurance you’re going to need on the house. Taxes are going to vary greatly too, depending on the county and the city.
Do buyers keep extra closing costs paid by sellers?
And before you ask, no, you can’t ask for more seller paid closing costs thatn what you actuallyl need to clost. Banks will not allow that, so we have to be very careful to only ask for the amount of money that we absolutely need on the closing cost sheet for closing costs and prepaids, and as a realtor, that’s my job to make sure that I only ask for as much as you need.
Many people think that sellers don’t have costs when it comes to selling their home. Well, the seller does have costs to close on their house as well. They’re not as high as buying a house, but that’s because when you’re closing on a house and you’re selling it, you don’t have those lender fees that buyers who are financing typically tend to have. That’s one of the main differences. They also have some different taxes and stuff that they have to pay for whenever they sell a house.
Typically, on a conventional loan, you can only ask the seller to pay for up to 3% of the total purchase price towards your closing costs, as the buyer. Now there are exceptions to this, if you put enough money down on a conventional loan, then you can ask up to six percent. However, whenever I work with buyers that have a conventional loan and can put more money down, I typically ask them to pay their own closing costs. If you don’t, then the seller may try to wrap those costs into the price and we’ve been seeing that happen a lot lately, especially in lower price ranges.
Should buyers always ask sellers to pay closing costs?
The whole idea is you want to get to the closing table with as little money out of your pocket as possible, right? Moving into new house, you may have a lot of expenses that may come up, but if you have some cash saved, maybe even up to 20%, is it necessary to ask for the seller to pay for your closing costs? Because this is what I see happen, as a real estate agent, and I negotiate this way whenever I’m representing someone who’s actually selling a house. Let’s say the house costs $200,000, so you put in an offer for $200,000 and you ask the seller to pay for $5,000 in closing costs for you. For the seller, that amount that they’re looking at for the total purchase price is $195,000 and, in our market, especially at this lower price point, we’re not really seeing sellers wanting to give up that much money.
Of course, it’s different if we’re in a market where we’re heavily saturated with affordable housing and there’s a ton of stuff on the market, but that is often not the case here in Oklahoma, especially in the lower price ranges. Now if we’re talking $300,000, $400,000, $500,000, that’s a totally different animal, and of course you’re going to be talking about a much higher closing cost price and down payment. In that case, there’s a lot more that we can do without negotiating because there are less buyers in those price ranges.
Is it worth it to ask the seller to pay my closing costs?
If you have the money to pay for your closing costs, is it worth it to actually ask the seller to pay for your closing costs? In a market where we don’t have enough affordable homes on the market, you may not want to do that because what will end up happening is the seller may negotiate like this: let’s say you have a you want to buy a house that’s $200,000 and the closing cost that you want to ask from the seller is $5,000. Well, the seller most likely, in a really heavy seller’s market, meaning that they know that they can get the money that they want and need, may come back and say they want the purchase price to be $205,000 dollars and they’ll pay your closing costs for $5,000.
Now this doesn’t make a huge difference on your monthly payment. It’s all about do you want that higher purchase price and then more money in your pocket at closing? Which could work out really well for you, or would you rather just pay the money for the house for the closing costs and then have that lower price on the house which would be $200,000.
Can I buy a house without paying anything out of pocket?
Is it possible to bring absolutely no money to the table when you’re purchasing a house? You may have heard people talk about this, and the answer is yes. It could be possible; you can get a grant to pay for your down payment and then have the seller pay for all of your closing costs. I’ve had two instances this year, where my buyers have had to bring either less than a thousand dollars to the closing table in order to purchase their house, or they actually got to take money home because they had earnest money that they had paid in, which is their deposit money and then they had everything paid for – their down payment and their closing costs, and so then they got to take their earnest money, or their deposit money, back home.
This is a possibility however, you may have to make some sacrifices in order to do that. And you definitely need to check with a lender to make sure that you could do that, in terms of grants and different loans that may be available to you.
How to sellers to pay for closing costs?
How are these closing costs paid by the seller negotiated? Well, we actually negotiate them whenever we’re putting in the initial terms on the offer. So, like I said, you offer $200,000, you ask for $5,000 of closing costs, and then you know negotiate from there, or however much money we’re talking about. I’m making it very simple in those terms of negotiation. We can also attempt to ask for them during the repair period of a contract, and then maybe sometimes during the appraisal period of a contract, depending on if the appraisal is low or not.
Is it normal for the seller to pay closing costs for the buyer? I’ve covered this a little bit already, but yes, it can be, depending on if the home has multiple offers. If the home has multiple offers, typically it’s not possible for you to ask for a bunch of costs to be paid for by the seller at that point, because they’re looking at the best option for them and typically that does not include paying closing costs for a buyer, unless you really move the price up, which often is not possible because of appraisals.
In certain price ranges it’s absolutely normal for the seller to pay buyers closing costs. A lot of times this happens neighborhood by neighborhood and that’s something that your realtor can actually look up for you, and I do that quite often whenever I’m putting in offers and whenever I’m selling houses. Another way that I can typically tell if it’s going to be easy for us to get closing costs paid for by the seller, is if the home has been on the market a while because we know that they may be more open to negotiating at that point because they haven’t received a good offer, or haven’t been able to close an offer on the house.
Do you have more questions? Go ahead and send me a text, email or call me! I also have my home buying packet, which you can download for free to get an overview of the home buying process.
