Any time you buy a home, you typically have two buckets of out-of-pocket expenses. The first one is down payment.
The other out-of-pocket expense is closing costs. Closing costs include several required service fees and insurance for your home, as well. A savvy buyer can ensure that he or she has the lowest out-of-pocket expenses by utilizing seller concessions to pay for their closing costs. The seller does not actually cut a check to the buyer, but rather shows a credit on the closing/settlement statement, thereby reducing the proceeds to them.
Listed below are programs and percentages of the purchase price that the seller is allowed to pay for expenses on behalf of the buyer. This allows the buyer to purchase a home with less out-of-pocket expense.
- USDA – 6% (Or the buyer can roll the costs into the loan, as long as the home appraises for the loan amount)
- VA -4%
- Conventional-6% (with 20% down payment)
- FHA – 6% (FHA is considering reducing this to 3% in the near future)
In this economy, and with rates as low as they are, it is often in the buyer’s best interest to include some, if not all, of their closing costs as part of their offer.