| WHO PAYS FOR THE CLOSING COSTS
As you begin your house hunting adventure, we want to give you a tip that will allow you to minimize your out of pocket cost. I am talking about seller paid closing costs.
You will be provided a Good Faith Estimate which lays out what your closing costs will be, based on the price of the home you are pre-approved to purchase. Our suggestion is that as you negotiate the purchase price of the home that you get the seller to pay for all of your closing costs as part of the deal.
You might ask, why would the seller agree to do that? In a “buyer’s market” they may have to agree to make it attractive enough for you, i.e. you have leverage in a down market. But what if it is a “seller’s market”? The seller may not have to come off his price at all and certainly will not have much motivation to pay any of your cost of obtaining the loan.
In either market, the contract you negotiate can be structured with the seller paying the cost and have it be a win- win scenario. Consider the following example:
Purchase price 200,000 Purchase Price 202,800
Closing Costs 2,800 Closing Costs 2,800
Closing Cost Paid by Seller 0 Closing Costs Paid by Seller (2,800)
Seller’s Net 200,000 Seller’s Net 200,000
The seller ends up with the same amount of money and you have effectively financed or rolled the closing costs into the transaction saving you $2,800. Even a reluctant seller can’t argue with this logic because his/her net proceeds are the same. The advantages to you are that you have that much less money due at closing and with interest rates as low as they are right now, it makes sense to finance this little extra expense. By financing that few thousand dollars in closing costs you will have that much more cash for those inevitable things that a new home requires, i.e appliances, window coverings, furniture, landscaping….you get the idea!!
If you decide to utilize this tip, don’t forget top pass this information along to your realtor! Or if you don’t have a realtor, call us at 678-483-3300 and we would be happy to assist you in structuring this into your transaction.
SELLER CONTRIBUTION LIMITATIONS
The seller can contribute towards the buyers closing costs and or tax and insurance escrow account set up. The amount that is allowable by most lenders varies depending on your credit, program selected etc…But the vast majority of normal borrowers fall in the following categories:
0 – 9.99% down payment Seller can contribute up to 3% of the sales price
10% or greater Seller can contribute up to 6% of the sales price
If you are doing 2 mortgages such as an 80/10/10, an 80/15/5 or an 80/20, the seller can usually contribute the full 6% because the lender is concerned with the first mortgage and not the 2nd.
WHO SELECTS THE CLOSING ATTORNEY
In Georgia, the closing attorney is negotiated as part of the Purchase and Sales Agreement. In the standard form used by the Georgia Association of Realtors, paragraph 3 on page 1 of the agreement provides for a blank to make this election. Most people are not aware that they can choose the attorney they work with, nor do they understand the vast difference there can be in the fees that various attorneys charge. For example, the closing attorney will typically issue the title insurance policies for both the lender and the owner. These fees are negotiable and can vary dramatically from attorney to attorney. In addition, the fees they charge for their services and the various “junk fees” can add up to large differences as well. Here at Family Mortgage, we have negotiated special fees with our preferred attorney that will most likely save you hundreds, if not thousands of dollars. Remind your Realtor to consult with you prior to submitting any offer so you do not fall into the trap of going with “just anyone”.
Earnest Money Deposits
Home sellers will generally require some type of “Good Faith” deposit when you submit your offer to purchase. In the industry, this is called an earnest money deposit. If it is an existing home, the deposit will most often run between $500 and $5,000, however larger homes may require a more sizable amount. In new home construction, builders will generally require larger deposits, particularly when the buyer is adding upgrades or has the flexibility of picking colors etc…The earnest money deposit protects the seller/builder in the event that the buyer backs out of the purchase contract after all contract contingencies have been waived. Since the seller has lost valuable time in marketing the property, the deposit acts to reimburse them for some of this expense.
Negotiating with the Seller to repair defects
Oftentimes, the buyer opts to perform a property inspection and then will negotiate with the seller on how to handle any repair issues that arise out of this inspection report. Handling this in accordance with lender guidelines saves everyone time by not having to re-executing documents!
We find there are typically three scenarios that generally arise:
- The seller agrees to a certain dollar amount to be credited to you in lieu of repairs. This is allowable as long as it is treated as a contribution towards your closing costs and/or tax and insurance escrows. The total seller contribution towards these items cannot exceed a certain percentage of the purchase price (between 3 – 6%) so it is best to ask your mortgage lender prior to finalizing your amendment.
- The seller agrees to certain repairs and you request that checks be written directly to the Vendor of your choosing at closing. This practice is acceptable to the majority of lenders but not to everyone. Please check with your mortgage lender if this is the direction the negotiation is heading and we can provide a quick answer.
- Virtually no lender will agree to establish and maintain an escrow for improvements to be completed after closing. There are a few exceptions so if escrow for improvements is the only option, please let us know and we will work to accommodate the need. However, loan terms may be affected by a change in investor!
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