Sunday, January 23, 2011

Seller-Paid Closing Costs

Here's what you need to know about seller-paid closing costs.

What are seller-paid closing costs?

• The seller is allowed to pay a certain percentage of the sales price towards the buyer’s closing costs
• The amount depends on three things:
–The type of loan: conventional, FHA, or VA
–The occupancy type: principal residence, second home, or investment property
–The amount of the down payment

How much can the seller pay?

Conventional (non-government) loans
• Principal residence or second home
–3% if the down payment is less than 10%
–6% if the down payment is 10% or greater, but less than 25%
–9% if the down payment is 25% or greater
• Investment property
–2%, regardless of the size of the down payment

FHA loans (primary residences only)
• 6%, regardless of the size of the down payment

VA loans (primary residences only)
• 4% for seller concessions
–VA funding fee
–Tax and insurance escrows
–Excessive discount points
• Unlimited for all other closing costs

What about the sales contract?

• The amount of seller-paid closing costs that is in the sales contract DOES NOT have any effect on the allowable amount.
• If the contract says the seller will pay 4% towards the buyer’s closing costs, but the limitation is 3%, then the amount in the contract DOES NOT matter. 3% is the max.
• Check with the lender before writing the contract!

Can anyone else pay?

• Yes. The real estate agents can pay the buyer’s closing costs. The same limitations apply.
• The lender can pay the buyer’s closing costs. The amount the lender can pay is unlimited.

Want to watch our video of this tip? Check it out on our web site by clicking here.

Want to make sure your loan closes? Call the Mortgage Experts at 303-345-3683.

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