Whether you’re buying or selling a home, you’ll want to know what are the seller contributions towards the buyer’s closing costs. These contributions can be a powerful incentive for selling a property because closing costs can add up very quickly. In some cases, closing costs can be between 3% and 6% of the purchase price.
How It Works
Once the buyer and seller agree to the sale price, the buyer may ask the seller to contribute toward closing costs. The sales price may be increased by a certain amount, which offsets the closing costs to be paid by the seller. An written agreement is prepared to make the arrangement official.
Limitations to Contribution Amounts
Depending on the type of mortgage loan, there are limitations to how much a seller can contribute toward the buyer’s closing costs. For example, with an FHA loan and a minimum 3.5% down payment, the seller can contribute up to 6%. With a VA loan, the seller can contribute up to 4%.
What Kinds of Closing Costs Can Sellers Pay?
Allowable seller contributions towards the buyer’s closing costs will vary somewhat depending on the type of loan. Typically, these allowable closing costs will include:
- Title service fees (title searches, title examinations, etc.)
- Lender’s title insurance
- Owner’s title insurance
- Mortgage rate discount points
- Debt and/or judgment payoff (with VA loans)
- Funding Fee (for VA loans)
Certain expenses are generally excluded from the seller’s contributions for closing costs, depending on the type of mortgage loan.