When sitting down with your Realtor to purchase a home, you are suddenly aware that there are all kinds of closing costs involved that you were not anticipating. Buying a home in Idaho Falls, Rexburg, or surrounding areas we find buyers closing costs to be around 3% of the purchase price. “Can I ask the seller to pay for my closing costs?" is a common questions a Realtors is asked. A way to reduce the cash a buyer will need at closing is to incorporate “Seller paid” closing costs (concessions) into a contract. This is a way a seller can allow the buyer to roll the closing costs into a loan and price of the home.

 Lets say you're wanting to purchase a $100,000 home. 

1. Your down payment $5,000
2. Your lender said closing costs (lender and title) will be $3,000

You realize you have not saved $8,000. You are prepared to put down $5,000 and do not wish to wait, you want to buy a house now.

Including the closing costs into the loan is a good option for you to get what you want without waiting to save more money. Let’s say the $100,000 home you want has sat on the market for quite a while with no other interest and you think you can get it for $90,000. Now you want to make your offer so that it includes your closing costs in the purchase price. In order for the seller to get the $90,000 you are prepared to offer and get your closing costs covered, you would have to offer a purchase price of $93,000. Closing costs come out of the price at closing, so the home would have to appraise for at least $93,000. A common misconception would be offering $90,000, asking for closing costs and assuming you are offering a solid $90,000 offer. What you are really offering a seller $87,000 because the closing costs are a benefit to you as a buyer, not the sellers.

In this scenario if you do have the $8,000 saved, it may make more sense to pay that amount at closing. This would keep your loan amount and monthly payments lower. It also allows you to negotiate other terms stronger, as covering your closing costs can be a negative options for a seller as it can jeopardize the appraisal and cost the seller to spend more money on some of his costs which are based on the purchase price amount.

Either options can benefit a buyer depending on their specific situation. If you would like more information on closing costs and what they entail, contact Tony Stallings who has been walking buyers down this path for 10 years. If you are ready to meet with a lender and start the process of buying a home in Idaho, we are happy to send you in the right direction.