Ever since the housing market meltdown, it has become fairly typical for home buyers to ask sellers for closing cost credits. This is just a way of getting a "discount" from the seller and reduces the amount of cash the buyer needs to bring to the closing table.
Today at our weekly office meeting, Betsy Hanrahan from PHH Home Loans helped clarify how much of a buyer's closing costs a seller can pay. The amount that is allowed depends on the type of financing the buyer is getting. However, in every case, the total of the credit cannot exceed the total amount of the buyer's actual closing costs:
Conventional financing with less than 10% down payment
- The maximum amount of closing costs a seller can pay is 3% of the purchase price.
Conventional financing with 10% or greater down payment
- The maximum seller contribution is 6%.
Conventional investment property financing:
- The maximum seller contribution is 2%, regardless of down payment amount.
- Maximum seller contribution is 6%, regardless of down payment amount.
- Maximum amount the seller can pay is 4%, regardless of down payment amount.
Note: Certain specialty loan programs such as Bond, Jumbo or Portfolio loans may have different criteria for maximum allowable seller contributions.
Always check with your lender before you negotiate an offer that involves a seller credit because the lender might not allow it. The last thing you want is to arrive at the closing table and have to cough up more money than you thought because the seller's contribution exceeds the allowable amount.
The other point of confusion that Betsy cleared up is what constitutes an allowable closing cost for a seller to pay. This has tightened up since the mortgage meltdown. Here are the things that can be paid by the seller:
- Title charges
- Attorney fees
- Lender fees
- Village transfer taxes
- Pre-paids for taxes and interest
Here are the kind of charges sellers are NOT allowed to contribute to:
- Down payment
- Condo association fees
- Home repairs
If you have questions about closing costs or home loans in general, you can call Betsy Hanrahan at 847-897-1021 or visit her website.
If you would like to schedule a buyer or seller consultation with the Come Home North Shore Team, please give us a call at 847.881.6657 or send us a note here.Planning to relocate to Chicago's North Shore? Take our signature Tour of the Shore to familiarize yourself with the communities, neighborhoods, schools and home values. Call us at 847-881-6657 to schedule.