Many first time buyers (and move up buyers too) negotiate for the seller to pay some or all of their closing costs. This is a great strategy to reduce the total amount of cash needed to purchase a home. All loan programs allow the seller to pay some or all of a buyer’s closing costs (and other prepaid expenses). But how do you determine exactly how much the seller can pay? Although some programs state the seller can pay up to 6% of the sales price toward closing, it is really rare that the closing costs actually add up to that much. I find 4% is more typical.
FHA allows the seller to pay all closing costs and prepaid expenses but also there is a strict requirement to have a minimum of 3.5% into the transaction (excluding the upfront cost of the home inspection and appraisal).
Rural Development (RD) and VA allow the seller to pay everything!
Conventional programs with 3% or 5% down restrict what the seller can pay to 3% of the sales price.
What’s the best way to figure all of this out? Have your loan officer do a worksheet to show you what the specific costs will be for a particular home purchase. Or use one of our DIY worksheets! Reduce your cash outlay by having the seller pay closing costs!