It’s no secret, buying a home is expensive. Not only do you have to worry about the down payment and moving costs, you have closing costs too. In most cases, you can expect to pay between 3 and 6% of your loan amount in closing fees.
If you’re talking about a $200,000 loan, this can add up to as much as $6,000 – $12,000. That’s no small chunk change! If you are using a government-backed loan, such as the FHA or USDA loan, chances are you are hard up for cash. Coming up with that kind of money might not be possible.
Luckily, there are some tricky (but ethical) ways to get the seller to pay your fees for you.
Offer the Full Asking Price
Most sellers don’t expect to get the full asking price for their home. In fact, many sellers pad the price knowing that buyers are going to try to bid low. Once negotiations are over, the seller will end up closer to where he wanted to be without really disclosing that amount.
Instead of bidding low, you could bid the full asking price. First, you’ll blow the seller away. Second, he’ll likely jump at your offer. When he’s in his happy place, you can then ask him to pay some or all of your closing costs. Knowing that he inflated the asking price, the seller may be willing to help you out. He’ll likely still walk away with close to what he wanted for the home.
Increase Sales Price to Make up for Credit
If you didn’t bid the full amount, but know the home is worth more than you bid, you can go back to the seller and negotiate. Talk to him about your need to obtain help for the closing costs. You can then raise your asking price accordingly. Of course, make sure you don’t raise it up so much that you won’t qualify for mortgage financing.
Here’s an example:
A seller is asking $250,000 for his home. You bid $225,000 and he accepts it. You find out from your realtor that comparable homes in the area have sold for between $240,000 and $250,000. You can ask the seller to adjust the sales contract for the appropriate amount of your closing costs. Let’s say you need $10,000. You could change the sales price to $235,000.
You’d have to adjust your down payment to meet the requirements of the loan. For this example, let’s assume you have an FHA loan. You’d need $8,225 for a down payment. The lender could then get you a loan for the remaining $226,775. The seller would credit you the $10,000 at the closing, wiping out your closing costs.
In reality, you pay the closing costs over the life of your loan because you borrowed the money to pay the costs.
Don’t be Demanding Towards the Seller
Sellers don’t like it when buyers have a lot of contingencies on their contract. A financing contingency is one thing. But anything else can just delay the sales process. Consider buying the home “as is.” In other words, don’t have an inspection contingency and ask the seller to make a bunch of changes. You have to pick your battles here. If you need money for closing costs, use the money that the seller would have used to fix the issues with the home.
Of course, this doesn’t mean buy a home with a lot of issues. You need it to pass an appraisal and be livable. But, if there are little things you can overlook, do it. This includes things like not asking for the appliances or window treatments. It can be little things like that the seller will appreciate and be willing to help you get into the home.
Be Accommodating With the Closing Date
If the seller is in a hot hurry to close on the home, be accommodating. Maybe they already have a home under contract or they are being relocated. Whatever the reason, try to meet their demands. If you give a little, then they may as well. If you let the homeowners know that you can buy the home in the timeframe they need, but that you’ll need help paying the closing fees, they may accommodate you. Again, it’s all about give and take.
Meet the Seller Halfway
Lastly, you can negotiate with the homeowner by meeting him halfway. Rather than asking him to cover all of your closing costs, you pay half and ask him to do the same. This way he isn’t giving up all of his profit just to get rid of his home. He can see that you are making an effort, but that you need a little push to get to the closing.
This is often the easiest negotiation because you aren’t asking for the full amount. If your closing costs aren’t out of hand and you are only asking for half, it could work in your favor.
Each of these tactics are legitimate and possible! The key is being open and honest with the seller. Don’t try to dupe him into paying your costs for you. Instead, enter the transaction with full disclosure. Let him know that you don’t have the full 3 – 6% needed for the closing. If the current homeowner can help you out, though, you can likely buy the home.
Again, you’ll want to show that you are capable of buying the home. It helps if you have a preapproval letter from your lender. This lets the homeowner know that you are not only serious, but also qualified to buy the home. You can also give the seller a decent amount of earnest money to show your seriousness in wanting the home. If you combine that with few demands and accommodating his closing date, you’ll be in good shape to get the help you need in paying your closing fees on your mortgage.