mortgage

Home sellers toss in closing costs

Giving too much?
The total tab for closing fees can vary considerably. Local real estate transfer taxes, for instance, can add substantially to the total in some areas. And, the time of year a purchase is transacted can also impact costs since lenders may demand more or less property tax be placed in escrow, depending on when they expect the next bill to come due.

In essence, when a seller covers closing costs, he simply nets less from the sale, just as he must subtract the real estate sales commission from their profit, explains appraiser McCarthy.

Both closing fees and sales commissions are costs related to the purchase, but they do not directly reduce the purchase price, he adds.

When sellers contributed down payments to buyers through nonprofits, it directly reduced the purchase price, which caused worries among appraisers that recorded sales values were falsely inflated. (Although seller-contributed down payments are now disallowed, FHA rules do allow buyers to receive a cash gift for their down payment from a close relative or friend, and rules still allow buyers to receive grants that aren't contributed by the seller, but directly from charities and housing nonprofits.)

Still, instances can occur when lenders frown on sellers chipping in big amounts for closing fees.

Red flags may pop up, especially in non-FHA loan transactions. Indeed, sellers can't even contribute to closing fees unless the buyer is making at least a 10-percent down payment with a conventional, non-FHA loan.

But those stricter rules on non-FHA transactions don't really get in the way much of the time with buyers' requests for closing assistance. That's because it's the many buyers with a limited amount of cash who need both a low down payment FHA loan and seller help with closing costs.

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