mortgage

Home sellers toss in closing costs

Highlights
  • "This is definitely the age of seller concessions."
  • FHA rules allow sellers to give up to 6 percent of the purchase price.
  • The total tab for closing fees can vary considerably.

So much for curb appeal.

Sure, it takes a welcoming presence to lure homebuyers to your door. But in today's market, it often takes a fistful of cash to get them to the table.

When they come to the closing table, sellers are increasingly picking up the tab for all the ancillary costs buyers incur when purchasing a home.

These "closing costs" can include a long list of charges, from relatively inexpensive document copying fees, to more hefty tabs for reserves for property taxes and homeowner insurance.

Just on the buyer's side -- sellers have their own set of fees -- closing costs might run several thousand dollars or more.

Why sellers pay
"This is definitely the age of seller concessions," says home appraiser T.J. McCarthy, an instructor at the Appraisal Institute, Chicago.

In any "buyer's" market, sellers yield to price cuts and other demands, like leaving behind the hall chandelier.

But writing a four- or five-figure check to cover buyer's closing costs is a concession that's particularly needed to cinch a sale in today's tight credit environment.

Rules still allow sellers giving closing fees
Lenders have gone back to insisting on an old principle: Every homebuyer needs a down payment.

Coming up with down payment cash is enough of a problem, especially for first-time buyers, without having to dig further for closing cost cash.

Federally-insured FHA mortgages allow the lowest down payment -- 3 percent -- of the purchase price. That will increase to 3.5 percent at the beginning of 2009, but FHA mortgages still offer the lowest down payment, with other loans requiring at least 5 percent. That's a key reason why FHA mortgages are quickly gaining popularity.

Until October 1, 2008, home sellers could essentially contribute an FHA buyer's down payment by making a contribution to a nonprofit, which in turn would provide a down payment grant to the buyer.

While that practice is now prohibited, FHA rules do allow sellers to give up to 6 percent of the home's purchase price for closing costs. "The thing to remember is that they can give up to 6 percent, but if closing costs only total 4 percent, that's as much as a seller can give," says Don Frommeyer, board member of the National Association of Mortgage Brokers.

Sellers: Prepare to pay
"We have seen a huge rise in seller contributions," says Minnesota Realtor John Anderson, past chair of the federal housing committee of the National Association of Realtors.

"In better than half of my deals lately, sellers are paying closing costs," says Anderson.

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As long as a market giving buyers the upper hand and tight credit conditions persist, this trend will stick, observes JoAnne Poole, past president of the Maryland Association of Realtors.

"I try to educate sellers to be realistic; they may be expected to help buyers with closing costs," says Poole.

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