Buyer Help March 10, 2023

Can Seller Pay My Closing Costs


Given the changes in the market recently, I’ve been receiving this question quite a bit. And the answer is depending on the market? Yes. They can pay a good chunk of it. It also depends on your loan and that is a big factor a lot of people don’t think of.
It’s because a lot of agents will talk about like, oh, it’s the buyers. You have leverage and all that stuff. In our current market situation, or at least when I’m filming this video, that is the situation is a lot of times you can negotiate the seller to pay a good chunk of your closing costs, but the lender has really strict requirements on what they can pay and how much they can pay. So a lot of people are like, oh, “I can just have the seller pay everything for me.”

If VA, maybe, yeah, you can probably get away with a lot of that. But for low down payment, conventional and FHA loan programs, you have to have a certain down payment. Here in Colorado we have the Colorado Housing and Finance Authority. We have a lot of buyers that will take advantage of CHFA down payment programs. They have some great down payment assistance and closing cost assistance programs to help buyers to get into homes. All you’re doing is you’re financing more money, you’re just financing it from somebody else. Which is fine if it gets you into the house and you can afford the monthly payment and it gets you there. I’m all for it. After buyers go through that and it’s gotten them into amazing equity positions 3, 4, or 5 years down the road that had they not had that situation, they never would’ve been able to do what they were able to do:  Sell their house, take 50 grand, go buy a new build house in another state. All kinds of things that you’re like, wow, never thought I could do that because you got help at step one. Okay? It gets you in a better position down the road. I’m all for that. However, there are limits on what the seller can give you. And that is one thing that having an educated agent and a really good agent will make or break your situation when you go to buy a house. Because a lot of agents will make the offer and say, “Hey, we’re gonna offer you $500K for your house and we want you to credit $10,000 towards the buyer’s closing costs.”

If I’m right before I write that offer for my buyer, if my buyer’s like that’s what I want to do, I’m gonna call the lender first and foremost, hands down. Because I’m gonna say, “How much can we bring? How many credits can we get?” Because when it comes to time and inspection, a week or two down the road, and let’s say there’s issues an inspection and the seller doesn’t want to fix it and they’re like, “Here’s another $5,000 to fix it.” And the buyer and the agent now  have $15,000 of seller credits, may not be able to use that. And you’re like, well yeah, but then that’s just less money I have to bring to down payment. False. Most lenders will not let you use seller concessions to pay your down payment because then it is not your down payment. That’s a really big thing that having an educated buyer’s agent and understanding those things because those seller credit amounts change based on the type of loan they can change based on the amount that you’re putting down for a 95% loan for conventional, like a 5% down conventional loan, the seller, most of the times, depending on the lender and the situation, but a lot of times the seller can credit up, can bring up to 3% of the purchase price, which means it’ll probably cover all your closing costs, maybe HOA fees. You can use up that money to prepay some HOA fees or something for a few months or whatever. And I’ve done that for buyers and we’ll walk that line just as much as we can because what happens is if you have too much in seller concessions, more than the lender will allow. Let’s say 10% down, then most lenders will allow you to bring up to 6% of purchase price in seller concessions. It really depends on a lot of these little factors. But let’s say that $500,000 house and the buyer and seller agreed to seller says, okay, fine, we’ll give you $15,000 total 10 off. The original is a credit based on the original offer and another 5,000 based on inspection findings or something that needs to be done.


You May Have to Give It BACK?!

Maybe you end up closer to the closing date and you get to give about $2,500 back to the seller. You’re like, whoa, whoa, whoa. What the, but that’s my money. Can’t use it, use it or lose it babe. And so that’s the piece so many people screw themselves that way and they don’t understand it. Especially in a market condition where the buyer has some leverage and can negotiate to get a lot of these seller concessions. They can’t just give you cash that you put in your pocket and walk down the road. They can pay your closing costs, but the lender’s gonna have really strict requirements on these things. Don’t your seller concessions. Because then, and I’ve talked to lenders and we’ve tried to be really, really strategic of like, okay, what can we do?

Can we buy down the rate? Now what a lot of people are doing right now is they’re saying, “Hey, seller’s gonna pay $20,000 towards a buyer’s closing cost.” And you’re like, whoa, well that’s crazy. Well, if you start buying down the rate, cool. If you’re gonna buy it down a chunk because the rates are so high and that’s what makes it affordable for the buyer to get into the house, and that’s the strategy, great. There’s a lot of buyers and sellers working that out right now, and I think it’s a great option for certain buyers. But you have to understand, even with that money, you’ve gotta fit within these limits for some lenders. And so knowing all these little nuances is really important for your agent. You don’t have to know these, but your agent has to know enough to say, I’m gonna call the lender because the last thing I want to do is get the seller to agree to something that will screw you in the end. Or you have to give it back because chances are the seller’s not gonna be like, “Oh, you can’t use that and I get to get it back. Oh, let me figure out another way for you to get it.” They’re gonna be like, you should have figured that out. That was your deal, not my problem. If you’re talking to your agent about seller concessions or about can the seller pay my closing costs? Can they pay all that so I don’t have to, your agent should be saying, there are limits. We can do a lot. Let me talk to your lender. That should be the answer. Unless they are your lender, because some agents are licensed as lenders as well, in which case, yes, they can give you an answer because they can do that.

But that should be the answer of, let me talk to your lender and see what we can do because I don’t want you to have to give any money back. Just today’s little tip, making sure that if you’re negotiating those seller concessions or those seller paid closing costs, that you’re not giving that money back. If someone says, “We want the seller to pay xyz, and I know that’s above what the buyer can use, I’m gonna let you know.” Seller says, “I don’t think they can use all of this, and I don’t think their agent realizes it yet. just letting you know, you may get some of this back.” No guarantees. We gotta figure out what the deal is down the road, but hey, I’m going to help my client to their advantage because that’s my job.

That’s what I’m hired to do. Anyway, if you’re in the Denver metro area, definitely hit me up, happy to help you, happy to strategize, do all that stuff unless you have an agency agreement with another agent and then I can knock it in the middle of it because that’s called sign crossing and I’m not stepping on anybody’s toes, it’s not my business. If you’re in another market area and you need a recommendation for a good agent, hit me up here. I love doing the matchmaking. I have a great database of amazing agents and experts, and CRS agents. We’re in the top 2% of agents in the US like myself.  Let me recommend one of those awesome people to you and thanks so much for the time and have a great day.