How to Get the Seller to Pay for Closing Costs
When you buy a Lehigh Valley house, you’re not just responsible for the listing price of the property itself. You’ll additionally need to budget for other costs associated with the home purchasing process, like the home inspection, the title search, any brokerage fees, and don’t forget your down payment. But another set of costs that often is overlooked and comes with a bit of sticker shock are the closing costs.
As a buyer, you’ll need to understand how closing costs are calculated and get estimates ahead of time to prepare. And when closing costs can range anywhere from $5,000 to $20,000, it’s a significant chunk of change to arrange for paying.
What many buyers don’t realize, however, especially first-time buyers, is that there are ways of avoiding those hefty closing costs out of pocket. In some scenarios, you can even get the seller to pay closing costs if you know how to navigate the process. Here’s what every Lehigh Valley homebuyer needs to know about closing costs and how to go about getting the sellers to pay for them.
Understanding the Basics of Closing Costs
What are closing costs all about anyway? Typically paid by the buyer, these costs are charged by lenders as payment for creating and processing your home loan. This lump sum, due at closing, represents expenses associated with title searches and property appraisals. Closing cost averages and requirements will vary across the country but are usually within the 3%-6% of the listing price range. The type of mortgage and home loan you get will also impact the closing cost totals.
Closing costs, which can often be anywhere from $3,000 to $6,000 depending, are not included in any down payment you have already had in savings. But closing costs can be negotiated. And we’ll get into the advantage of seller concessions here in a bit. As a best practice, it’s always a good idea for homebuyers to prepare for these closing costs ahead of time, in addition to their down payment, just in case seller concessions are not available.
Some Homebuyer Loans Allow Closing Cost Financing
If you’re a first-time homebuyer, closing costs might be able to roll into your loan. Conventional loans likely won’t allow it. However, FHA loans and VA loans do have provisions to help finance closing costs. There are also grants available for first-timers to explore, designed to help with the upfront costs associated with purchasing a Lehigh Valley property.
What Are Seller Concessions?
When you hear your agent or lender talk about seller concessions, they’re typically referring to any costs the home seller may agree to pay as part of the process of selling their property. In general, seller concessions represent a percentage of or the entirety of closing costs or other expenses. Some sellers might agree to pay for the transfer of taxes. Others might agree to cover half of the closing costs.
As a buyer, it’s important to remember seller concessions are a trade-off, not a gift. Sellers won’t pay your closing costs without getting something in return. Your lender can help you better understand the nuances of your home purchase figures to know what you’ll be negotiating when you’re able to leverage seller concessions.
How to Get Your Sellers to Consider Paying for Closing Costs
Again, sellers won’t offer concessions for free. And there are ways to ask the sellers in your deal to consider concessions. Here’s what Lehigh Valley homebuyers should know.
Paying the Full Asking Price for the Property
Making a lower or low-ball offer isn’t going to help you with seller concessions. Instead, consider paying full price for the property, asking for the sellers to help offset closing costs. Be reasonable with your ask and know the best way to get what you want is to also offer something the sellers will want, like the full asking price.
Make Sure You’re Ready to Move Forward, without Delay
It’s best not to ask for seller concessions if you don’t at least have your own ducks in a row. Sellers will be more apt to work with you if you’re ready to close right away, with asking for extensions or more time to get the paperwork in order. Have all of your preapprovals in place and be ready to schedule prompt inspections. This signifies to the seller that you’re serious and motivated, albeit aside from your one seller concession request for help with closing costs.
Don’t Contradict the Market
If it’s a seller’s market, meaning there is a line of buyers right behind you eyeing a listing, asking for sellers’ concessions might not work in your favor. It’s not necessarily doing your sellers any favors by agreeing to closing costs. And when there are other offers on the table, demanding concessions might work against you. To know what scenario you’re in with your sellers, talk to your real estate agent who can coach you on what is and isn’t an acceptable ask right now, based on your current market.
Avoid Making Unreasonable Demands
If you’re primarily looking for your sellers to cover closing costs, avoid making other demands that might sour the deal. For example, if there are repairs or conditions that didn’t fare well during the home inspections, it’s reasonable to ask the sellers to offset those costs of repair or make repairs themselves. But asking for condition repairs and closing costs might be too much to ask, depending on the situation. Let your expert real estate agent guide you on the negotiation process to make sure you’re asking for the most reasonable seller concessions and within the best chances of getting your closing costs covered.
A Percentage of Closing Costs Is Better than Zero Dollars
If you’re buying a home for $250,000, with 3% representing closing costs, or $7,500, be open to partial closing cost seller concessions. Because you’re essentially asking the sellers to do you the favor, don’t get greedy or over-demanding. Be flexible and negotiable, even with closing costs. Getting $3,500 of that $7,500 bill is better than having to come up with $7,500 on your own.
When Is a Good Time to Ask for Seller Concessions?
Your timing matters when trying to get sellers to cover your closing costs. And there are certain circumstances in which asking for seller concessions make the most sense. Here are a few scenarios that might apply to you now, that warrant a proper inquiry into asking your sellers for help with closing costs.
Seller Concessions to Prevent Draining Your Cash Reserves
If you’re concerned about cutting yourself short financially, especially considering all the other out-of-pocket costs you have in purchasing your home, asking for seller concessions makes sense. Your reason could be to avoid becoming cash poor
Staying within Preapproval Limits
If you’ve secured preapproval before beginning your home search, you’ll have price limits and budgets to maintain. It might make sense to ask for seller concessions to help you stay within those preapproval limits.
Reasonably Priced Homes
Seller concessions can make sense when the listing price of a home is reasonable already. Because getting sellers to pay for closing costs can, in turn, result in adding to your mortgage amount, it can also impact your loan, interest, and down payment. Adding closing costs to the purchase price, as a sellers’ concession, needs to be within the home’s value, which is best accomplished when the listing price is reasonable.
Having the Right Guides to Help
One common denominator throughout every one of these situations pertaining to sellers’ concessions is having the right guides to help you during your homebuying journey. An experienced real estate professional, for example, can help you navigate the market and the negotiations with your best interest in mind. Knowing just what to ask for and when to ask for it can improve your chances of getting a seller to pay for your closing costs.
If you need a Lehigh Valley partner, let Homeway Real Estate be your guide. Our professional team can help you find your dream home and every step that comes thereafter!