I posted on facebook recently about seller paid closing costs in a real estate transaction. I wanted to elaborate a little on what I wrote.
When home buyers in Minneapolis or other areas purchase a home for sale, there are OTHER costs associated with the purchase, NOT just the purchase price of the property. There are lender/mortgage fees, insurances, title company fees, escrow fees, mortgage registration taxes, etc. In a real estate transaction, these fees are commonly referred to as “closing costs”. In the past, before we hit this most recent real estate down turn, sellers were very likely to walk away from the closing with a profit from their investment of time and money in the property that just got sold. And, also, historically, buyers (especially first timers) were not holding a large amount of cash, so, in order for them to use the cash they DO have for the down payment, the sellers sometimes agreed to contribute money back for the buyers’ closing costs.
BUT, here’s the problem. Buyers have been told by their mortgage office or others that the sellers will PAY their closing costs or that they can roll the closing costs in to the mortgage. On it’s face, that’s true. When someone tells you that the closing costs can be rolled in to your mortgage it’s the SAME thing as the sellers paying the buyers closing costs.
Now think about it, would you just give someone you don’t know a big pile of money just because they’re buying your house?? Many times, people can’t even get this amount of money from their own families, so why would perfect strangers agree to give you this money?? Here’s how it REALLY works. A buyer makes an offer on a property and requests the sellers to pay the closing costs. In order for that offer to be clear to the sellers about their bottom line, the buyers’ agent will make sure that the offer price is one thing and the math is done to add the closing costs ON TOP of what the real offer is for the property. Make sense???
Here’s an example:
Offer Price: $100,000
Request for Buyer closing costs: $5000
REAL offer price: $105,000
There are industry safeguards to this doesn’t get out of control. It’s just important to note that, because this is a business deal, there is an offset for the request of the sellers to pay the buyers closing costs. That’s what your lender means when they say you can “roll it in to the mortgage”. It’s “rolled” in to the purchase price, and therefore, the mortgage.
Check my facebook profile and my trulia.com profile.
Susan Hofflander is a seasoned real estate professional, providing real estate consultations for home buyers and sellers in the Twin Cities since 1994. Susan specializes in homes for sale in Lake Calhoun/Lake Harriet, Minneapolis, Plymouth, MN, Minneapolis Western Suburban Cities and Downtown Minneapolis Lofts.