There are ways to minimize your out-of-pocket expenses when purchasing a home. Negotiating the best price is a start, but may not necessarily be a means to an end. If you are obtaining a loan, it is likely that you will be putting money in as a down payment. Of course, there are some 100% VA loans but if you do not have military background then that is not an option.
As a way to help buyer clients save their out-of-pocket monies, many times we decide to ask the seller to pay for closing costs. Closing costs are really divided into two sections. The first are your actual costs necessary to obtain a loan. This is essentially the cost of doing business with the bank, as well as performing your due diligence on the property you wish to buy.
Typical buyer closing costs include the following:
- Loan origination fees
- Credit report fees
- Attorney fees
- A home inspection
- Title insurance
- Recording Fees
Then there are escrow fees. To explain, banks generally want to make sure that an account is created in order to pay your property taxes each year, and also your homeowners insurance. This is a safeguard so they can make sure that the investment is not at risk by always having insurance on the property, and keeping it off of the courthouse steps.
These are fees that all buyers that are obtaining a loan typically pay. And while it is sometimes difficult to get a seller on board with paying your closing costs, it is not impossible. A great deal of the strategy has to do with finding out who the seller is and how savvy they are with real estate in general. If they have not had a lot of real estate experience and have lived in their home for the past 30 years for example, it may be difficult to get them to understand why they should pay your closing costs.
One way to achieve this is to negotiate a clean and simple contract without asking for closing costs. Once an agreement is made on a final price, then you can increase that final price by the amount of money you would like for them to pay on your behalf toward your closing costs. Lastly, add the closing costs in as part of the contract to be paid for by the seller.
I know this sounds like a lot, but it is something that we do quite frequently and it helps our buyer clients in the process.