Can someone explain rolling in closing costs and seller paid closing costs?

Sorry if this dumb, but I want to be realistic about what we need when we make an offer.

Re: Can someone explain rolling in closing costs and seller paid closing costs?

it's very rare - esp in NY that the seller will pay the closing cost- I have seen it a few times and I have offered it as an incentitve on a listing- but it's rare

it's more common- but more difficult in this market to do whats called a sellers concession

let's say the house is $300K

you can "roll in" up to 6% in closing costs

so that's $18K

BUT now the house needs to apprasie for $318K- that's were agents and lawyers representing the sellers will want to protect them and put a clause in the contract saying you have to buy the house even if it doesn't appraise for $318K

the main expense of closing costs in NY is the taxes- either paying the seller for what they have paid or escrowing your taxes with the bank

then title

then the bank fees

let me know if you have any more questions

Re: Can someone explain rolling in closing costs and seller paid closing costs?

The only way we could buy a house was if we got a sellers concession. Our RE Atty made sure to put a clause in our contract that if the house didn't appraise, we would renegotiate the price since we couldn't pay more than what we originally offered. If we couldn't agree on a new price, we would walk away and get our DP back.

Sure enough, the house appraised for $8k less than what we needed for the concession. We renegotiated for a week and the sellers agreed to lower the price rather than put the house back on the market.

Re: Can someone explain rolling in closing costs and seller paid closing costs?

Also, with the seller's concession route, your down payment is based on the total amount (including the closing costs). But the appraisal can be the biggest obstacle in the current environment, unless you find a house that is priced significantly below market value.

With an FHA loan, you can get a seller's concession up to 6%. With a conventional loan, it depends on how much you are putting down. I believe if you put down less than 10%, you can only get a 3% seller's concession, and if you put down more, you can get up to 6%, but a mortgage professional would be able to explain the exact limits.

If you decide to seek a seller's concession and roll your closing costs into your mortgage, make sure that your agent understands this and can properly present it to the seller in a way that doesn't scare them off. A lot of agents don't understand seller's concessions and therefore want to avoid them. A seller may be leery of it also because of the concern over having the house appraise for a higher amount (and also, the seller has to pay the NYS transfer tax on the sale, which is $4 for every $1000 of the purchase price... so the seller's concession does increase that expense for them, but it's not really a significant amount).