In 2018, 5.34 million homes were sold in the U.S. Are you thinking about jumping in for 2019?
Buying a home is a huge expense and one that is particularly difficult for first-time homebuyers. They don’t have the advantage of selling their old home to pay for the new one. They have to provide the down payment, have enough savings and income to qualify for a loan, and still have money left over to pay closing costs.
It’s quite a hurdle.
Closing cost credits from the seller are a trick you can use to reduce the upfront burden of closing costs. Keep reading and I’ll explain how it works and why sellers will agree to do it.
How Much Are Closing Costs?
Closing costs are nothing to sneeze at. The amount varies between 2%-5% of the home’s value. On a $300,000 house 5% is $15,000!
When you’re already forking over a lot of cash for the downpayment, closing costs feel discouraging. What does all that money go? Learn more about what your closing costs are paying for.
For our purposes, you just need to know that you’ll be paying them.
What Are Closing Cost Credits?
If you don’t have enough cash on hand to pay for the closing cost, you may be able to convince the seller to pay your closing costs.
In reality, the seller doesn’t actually pay your closing costs. You agree to pay a higher price for the home and they pay your closing costs from the extra profit. Essentially, they are helping you to roll your closing costs into your loan.
Your closing costs will be more expensive this way because you’ll have to pay the interest on them. However, it can be a good way for you to still buy a home when you can’t afford to pay the closing costs upfront.
How to Convince the Seller
We already mentioned one common way of getting the seller to agree to pay closing cost credits. That is you paying a higher price for the home.
That’s not the only way, however.
You can also do it by agreeing to accept the home as-is if they pay the credit. They are guaranteed fewer hassles during the sale and you get help paying your closing costs. Just be aware that you’ll have to pay for any repairs out of your own pocket.
If the seller seems reluctant, you can negotiate different ways to save. Perhaps you could lower the down payment or earnest money deposit. You may be able to negotiate a lower sale price (which will lower closing costs). Finally, if the seller won’t agree to pay the full credit, they may agree to pay a smaller portion.
When you’re so close to purchasing your dream home, don’t give up!
Home, Sweet, Home
There’s nothing quite like that swell of pride you feel when you walk into your own home for the first time. If you think that the dream of homeownership is beyond your budget, maybe you’re just not looking hard enough.
Like negotiating closing cost credits, there are many creative ways that you can make it happen. Feel free to check out more of the blogs on my site offering financial advice for more ideas.