What are closing costs? These are costs that will be acquired at the closing. In most cases the day before closing you will receive a HUD-1 aka Settlement Statement. That settlement statement will itemize all of the costs to a buyer or seller. It will also tell a buyer how much to bring if any to the table. The monies are usually requested to be in the form of a cashier’s check. Some example of closing costs to a buyer are:

Origination Fee= 1%

Attorney Fee’s

Pro-rated Items such as interest, HOA fees, insurance and more.

Title Insurance

Misc Fee’s

Appraisal

and more….

A good way to have a buyer save their liquid and bring the least amount of monies to the table (if any) is to request the seller to pay the buyer’s closing costs & KEYWORD pre-paids. I think it is vital to have a buyer with plenty of reserves in the bank when they purchase a home. By the seller paying the buyer’s closing cost it enables the buyer to only increase or maintain the amount of reserves they already have. Unless you are going FHA the max amount that can be paid is 3% of the purchase price. In past years 3% used to cover almost all of the closing costs. As of late I have noticed that 3.5-4% is what is needed to cover closing costs. Of course this all depends on when you are closing, where you are buying, how much are you financing, are you receiving any discounts, the purchase price of the home & more.  With FHA financing the seller can pay up to 6% in closing costs. This cannot be applied to a down payment though. Unfortunately, the down payment assistance program is no longer available. I personally felt this was a wonderful product that allowed a responsible buyer with good credit, work history and more to purchase a home if they did not have 3.5% to put down. Before you make an offer on a house ask your agent to run a HUD for you or get a good faith estimate from the bank. Review the form and pay attention to your closing costs. Ask your agent if you should ask the seller to pay closing costs. In the standard South Carolina real estate contract their is a closing costs clause, in this section I write “seller to pay 3% in buyer’s closing costs and pre-paid items.” In my experience most buyer’s request the seller to do so.  With that said, it may not be a good option for you. For example, if you are financing much less than the offer price I would suggest just offering 3% less instead of asking for closing costs. Remember a big part of your actual costs are based off the loan price and the seller may be able to pay all your closing costs with less than 3% allowing them to net more at closing. Please ask your lender what happens to the extra monies if your total closing costs are less than 3% and you requested the seller to pay 3%. Some products or markets may allow monies to be applied in different places.

The Fred Holland Team sincerely hopes you enjoyed this article. Please remember to consult your local expert before taking advice from this blog.