Closing Costs

Calculate closing costsHow much can the seller pay towards buyer’s closing costs?

If you are negotiating a contract and the buyer wants to ask the seller to pay part of their closing costs it is very important to contact us prior to writing the contract. The amount that the seller is allowed to pay when a buyer is getting financing will vary depending on the type of loan, the loan to value, down payment, and the occupancy (owner occupied or investor).

Here is an overview of what the seller is allowed to pay for the buyer’s closing costs and prepaids/escrows:

  • FHA loans-up to 6% of the sales price (owner occupied only)
  • VA loans-up to 4% of the sales price (owner occupied only)
  • Conventional loans-depends on the down payment and occupancy:
  • Owner occupied with 5%-9.99% down payment = 3% of the sales price
  • Owner occupied with 10% or more down payment = 6% of the sales price
  • Investor loans-2% of the sales price regardless of down payment

Keep in mind that the Owner’s Title Insurance Policy and the Florida Document Stamps on the Deed are NOT considered buyer’s closing costs because the FAR/BAR contract already assumes the seller is paying those costs. The additional seller contribution that can be written into the contract can go towards buyer’s costs such as survey, appraisal, homeowner’s insurance, loan fees, etc. The seller contribution can never be used for the buyer’s down payment.

NOTE: It is very important you word this correctly in the contract to avoid misunderstandings at closing between buyers and sellers. We recommend you state that the seller is paying buyer’s “closing costs and prepaids/escrows” in addition to the standard costs of Owner’s Title Insurance and Stamps on the Deed. The closing cost credit can be listed as either a set dollar amount or a percentage of the sales price.

Finally be sure you are not asking for too high of a credit from the seller; for example if you state the seller is to pay 6% of the sales price towards buyer’s closing costs you may find that the buyer does not get the full benefit of the 6% because the closing costs/prepaids are not normally that high.

Excerpt by Bobbie Dyer
Bobbie Dyer Marketing