I have to bring how much to closing????

Some buyers can have ticket shock when they find out how much they have to bring to closing to buy a home. To clarify, that amount is a combination of closing costs, pre-paid items, and down payment. The down payment comes off of the loan amount, but the other costs are simply the mortgage, title, and other closing costs. Pre-paid items include around 12 months of taxes and a pre-paid portion of homeowner’s insurance. If your loan has private mortgage insurance (PMI), a portion of this may be pre-paid. The reason that these are pre-paid is because when you initiate your loan, there needs to be so much in your escrow so that taxes and homeowners can begin to accumulate for when it is time to be paid out. It ensures there is enough in the account when taxes come due or when your insurance gets paid out.

With that said, most buyers will have a few thousand in costs, in addition to the down payment. So even if you have a USDA loan (100% financing) you may still need a few thousand dollars to close.

With that said, most loans allow the seller to pay some of the closing costs. Typically, the buyer can ask for 6% of the sales price for FHA & USDA loans and 3% for some conventional loans. These are the limits and a seller cannot legally give cash to the buyer outside of the seller assist listed on the settlement sheet.

The most important thing to remember is that when a buyer asks for seller assist, the offer is inflated by this amount.  For example, offering $100,000 as a sales price, but with 6% seller’s assist, is essentially an offer of $94,000.  That $6,000 is coming right out of the seller’s profits. In a sense, the buyer is financing in the assist because he or she may not have that amount on hand to close.  

The second thing to understand is that the home must appraise at SALES PRICE.  In using the same example above, the home MUST appraise at $100,000, not $94,000.  When asking for seller assist have your agent make sure they are confident in the home appraising at the higher value.

As a buyer, remember what you are REALLY offering to the seller. For sellers, be aware that the majority of buyers, especially first-time home buyers, will need seller assist. It is common. Talk to your agent about this when selecting a listing price and setting price expectations.

There are many loan options with various options.  It is important to talk to your loan originator to discuss the need for seller assist with a particular loan product.

 

*Informational purposes only and to be conceived as mortgage or legal information.