For many homebuyers, closing costs are major obstacles to buying a home.

Closing costs are, on average, between 2%-4% of the sales price, and that’s on top of the down payment.

If you agree to pay closing costs for the buyer, you widen the pool of buyers for your property.

In this article, we are going to explore the benefits of paying the buyer’s closing costs.

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Advantages of Paying Buyers Closing Costs

  • Expand the pool of potential buyers
  • Sell your home quicker
  • List for a higher price

How much Closing Costs can the Seller pay

Most types of mortgage loans allow most, if not all, of the closing costs to be paid by the seller. Sellers also have the option of paying a portion of the costs or sharing the closing costs 50/50.

  • FHA Loans – 6%
  • VA Loans – 4%
  • USDA Loans – 6%
  • 203k Loans – 6%
  • Conventional Loans – 3%

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Seller Your Home Faster and for More Money

Mortgage lenders do not let buyers roll closing costs into the loan. Mortgage loans have a maximum loan-to-value ratio and cannot exceed that ratio, meaning closing costs are often paid out of pocket. Offering to pay the buyer’s closing costs opens your home to more potential buyers.

For example: If a buyer has 3.5% of the purchase price for the down payment on an FHA loan with a max LTV ratio of 96.5%, it means they cannot roll in any closing costs.

Seller Concessions

Certain costs are basically fixed into the transaction when you sell a home. A total of 6% for real estate commissions, 3% will go towards the buyer’s agent, and 3% to the sellers real estate agent.

When you offer concessions like seller paid closing costs, you can increase the purchase price to make up for it.

For example, if you are selling your house for $100,000, you agree to pay $5,000 of the buyer’s closing costs. You can adjust the sales price to $105,000 while paying $5,000 in closing costs. This way, the net total you receive from selling your home is the same.

Seller-Paid Upfront Costs

FHA Loans – An FHA home loan requires an up-front mortgage insurance premium of 1.75% of the loan amount. The seller can pay the entire amount; if seller contributions are not enough to pay 100% of the up-front fee, they cannot cover any part.

VA LoansVA loans up-front funding fee is 2.15%-3.3% of the loan amount. Seller’s contributions can cover any amount of the funding fee up to 100%.

USDA LoansUSDA guaranteed loans require a guarantee fee of 2% of the loan amount paid up-front. Seller contributions can cover these costs.

The Bottom Line

Paying the buyer’s closing costs has many benefits and ultimately does not affect the sale’s total net profit.

  • Expand the pool of potential buyers
  • Sell your home quicker
  • List for a higher price

Most mortgage loans allow the seller to pay up to 6% of closing costs, usually more than enough to cover 100% of these costs.

If you decide to pay $10,000 in closing costs for your home priced at $200,000, your contract can show the purchase price at $210,000 with $10,000 going towards the buyer’s loan costs, so there’s no lost revenue the seller.

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