Buying a home typically takes some cash out-of-pocket. There are a few loan types that require minimal or no down payment, but there are many extra fees and costs required to actually complete a purchase.

From experience, I know that for many buyers closing costs are typically about 2½% to somewhere around 3½%-4% of the purchase price. As an example assuming that the purchase price of a home is $300,000, out-of-pocket costs of actually closing on the sale (in addition to any down payment) might range from about $7,500 to, say, $12,000. Of the total, 1½%-2½% or so are actual loan fees — lender fees, recording fees, processing fees, appraisal fees, etc, — with the remaining 1%-1½% or so made up of prepaid costs such as upfront homeowner insurance, property taxes, homeowner association fees, prepaid interest, and so on.

Purchase Price		$300,000
Loan Fees (1½%)	$4,500
Prepaid Expenses (1%)	$3,000
Total Closing Costs Paid by Buyer		$7,500

So who pays these costs?

One approach often suggested by lenders is that a buyer request the seller foot the bill for all of the costs involved in closing the buyer’s loan.

Depending on the status of the current market or perhaps if a home listing has languished on the market, a seller “might” be willing to pitch in and contribute. However, as is most typical in my greater Pacific Northwest area of quick sales and multiple offers, it’s not realistic to expect a seller to pitch in and help in order to sell their home. That seller is unwilling to reduce the proceeds of their sale (their bottom $$) to pay a portion or all of a buyer’s purchase costs. In the mind of a seller, after all, if a buyer doesn’t have sufficient resources to pay their own way, another buyer will be coming along in the next 10 minutes!

Another strategy is to stack any loan costs on top of the purchase price, with the request that a seller then pay the closing costs out of that increased purchase price. That scenario might look like this:

Purchase Price		$307,500
Loan Fees (1½%)	$4,500
Prepaid Expenses (1%)	$3,000
Total Closing Costs Paid by Seller		$7,500

Note that you must be a bit careful with this type of approach. Not only must you, as the buyer, qualify for a higher loan amount, the actual dollar amount of the closing costs will increase based on the higher price and, perhaps most importantly, the home must also appraise at the higher purchase price. With rapidly escalating prices in my area, adding closing costs to a purchase might be just enough to effect a low appraisal–below that all-inclusive purchase price.

Keep in mind, also, that a seller has their own closing costs to pay, which may include brokerage fees, recording fees, notary, HOA dues, etc, and excise or other taxes. Many of these fees are based on the purchase price and if you’ve added closing costs into the purchase price, the seller must pay fees on that inflated price. You may need to offer a seller a slight bit more to cover their extra expenses.

Obviously, if you can pay your own closing costs as part of your purchase, your offer may be looked upon more favorably by the seller and you may have a greater chance that your offer will be accepted. If you do need assistance, be sure to review all of these factors when obtaining loan approval. I’ve seen many offers fail because a buyer asked a seller to pay closing costs … and I’ve seen transactions fail when appraisals come in low.

Your loan officer should provide you with an estimate of closing costs for your purchase. Your real estate representative should provide you with thoughts an options about how to structure a purchase that includes consideration of closing costs.