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Closing Costs: Does the Buyer Always Have to Pay? Can You Ask the Seller?

written by: Valerie Tandoi•edited by: Jean Scheid•updated: 1/31/2011

When it's time to close on the new home you've always wanted, are sellers usually willing to pay closing costs? Or, do you as the buyer have to pay? Or are closing costs split? Find out here!

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    Buying a new home can be a stressful and financially draining time. Many buyers save up money for a down payment on their new home, typically around 20% of the house's value. In addition to down payment money, buyers need to come up with money for other closing costs. Some buyers fail to realize that they can negotiate to have the seller pay some of their closing costs. More times than not, many buyers are wondering are sellers usually willing to pay closing costs? If you're buying a home, especially in a buyer's market, make sure to be armed with knowledge before shelling out too much money at closing.

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    What Are Closing Costs?

    house2 1 Closing costs are fees incurred when buying a home and securing a mortgage. Examples of typical closing costs include things such as a credit check, a title fee, mortgage application fee and paying for the appraisal. In certain states, such as New York, there needs to be a lawyer present at the time of closing. This fee can also be considered a closing cost. Another type of self-imposed closing cost can occur when the buyer wants to purchase points. Buying points can help to reduce your interest rate over the life of the loan. While mortgage companies have an actual breakeven formula that can tell you if buying points will be beneficial to you, a general rule of thumb is that buying points is usually recommend only if you plan to stay in the same house for a while. If you move around a lot or plan to refinance often, buying points will most likely not benefit you.

    Image Credit (FreeDigitalPhotos).

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    Ask the Seller to Pay Your Closing Costs

    So, are sellers usually willing to pay closing costs? The short answer is yes. If it is a buyer's market, it is the perfect time to ask the seller to pay for some of your closing costs. This is a common practice, so there is no reason to be nervous. If you do feel uneasy about the process, have your real estate agent discuss it with their real estate agent. If the house has been sitting on the market for months or if the seller is under a time constraint of when they need to move, they will likely agree to this request. However, don't expect a free ride. When dealing with primary residences and vacation homes, the seller can only pay up to 6% of the buyer's closing costs on a conventional loan. This number is reduced to only 2% when an investment property is being purchased. Lending rules have become much stricter in recent years. Your lender will make sure that you adhere to guidelines. You cannot have the seller pay more than the lawful amount by drawing up a separate agreement. If you are opting for a non-conventional loan, it is best to check directly with your lender for regulations as some VA programs have more flexible rules.

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    The Good Faith Estimate

    Before negotiating who will pay the closing costs, it's good to be armed with information about how much the closing costs are expected to amount to. Although it is usually hard to get an exact number until right before the closing, your lender is legally obligated to provide you with a good faith estimate upfront and again three days before you are scheduled to close. The good faith estimate will give you a general idea of how much the closing costs will be. Be sure to study the good faith estimate carefully. Certain fees will fall into a category that the lender can't change. While other fee categories are allowed to vary. For example, the good faith estimate will provide you with an accurate amount of what the title charges will be if you go with one of the mortgage company's approved vendors. If you choose to pick your own title company, the lender can not be responsible if the new title company quotes you one price upfront and changes their mind later on.

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