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May 26, 2020
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How to lower your cash to close when buying a home

By: Scott Sheldon
December 7, 2018

Purchasing a home can require a down payment plus closing costs which can equate to thousands of dollars. Here’s a way you can get your foot in the door using other people’s money.

The national housing market has slowed, and refinance applications are down to the lowest level in years while purchase applications are otherwise still stable. This is being brought on by a rise in rates. You can purchase a house with as little as 3.5 percent down on an FHA loan or even 3 percent down on a conventional mortgage. Three percent doesn’t sound like much; however, in the relationship to the price point you’re desiring, it could be.

For example, 3 percent on a house for sale at $600,000 is $18,000 of cash while 3 percent on a $300,000 home is $9,000. This represents a significant difference for $300,000 more in purchase price. One of the things that has always been available in the marketplace, but is becoming more common is the use of seller credits for closing costs.

Let’s say you identify a house in the marketplace for $600,000 and you just have enough for the down payment totaling $18,000. Closing costs on a $600,000 house on an average are going to be approximately $12,000. So, when you make an offer for $600,000 you’re not really making an offer for $600,000, in the eyes of the seller you’re really making an offer for $588,000. So, you would make an offer for $600,000 with a $12,000 seller credit for closing costs. Or if you were looking to purchase that same house and you wanted the seller to net their $600,000 asking price you would make an offer for $612,000 with a seller credit for $12,000 giving them their desired price point.

Whenever you make an offer on a house and it involves a seller credit for closing costs know that it does make your offer a little bit weaker because the seller must give up monies from their pot.

A seller credit can work when:

• in the right price point

• property has been on the market for a while

• lost that initial momentum when it hit the market

This is something you’ll want to make sure to have the advice of your real estate agent and your lender as a seller credit for closing cost is a fantastic way for you to reduce your total cash to close.

The way that you would want to structure this for the maximum benefit is that you want a dollar amount for the closing costs. Using the example above: the $12,000 is for all closing costs both reoccurring and non-recurring. In the establishment of your offer with your real estate agent you want there to be a dollar amount for all closing costs, you don’t want it broken down reoccurring versus non-reoccurring.

Here’s why… if you have closing costs credit only for non-reoccurring then that means the other closing costs are on you to pay.

Closing costs that are reoccurring includes interest, taxes and insurance as they reoccur each month as a byproduct of carrying real estate. Non-recurring closing costs are the one-time fees appraisal fee, lender fee, discount points if you’re paying any, title insurance, settlement fees etc. Those fees can add up and are considered the “junk fees”. Remember total closing costs when you’re asking for a seller credit. Now if it comes down to an impasse remember everything in real estate is negotiable so maybe you get a credit for half the closing costs with the seller for example, but the key here is to make sure that goes towards closing costs so as not to delineate it on what type of closing costs the seller is paying. This way you get the maximum advantage with as little cash to close as possible.

Looking to buy a home? Get a no cost quote now.

Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at