So you have your money for the down payment, or you’ve saved enough money to move and purchase new household goods, or maybe you just have some funds saved away for a rainy day and you’re looking to purchase a home. However, you don’t have enough to cover all of your expenses AND the closing costs associated with buying a home. This may be a discouraging roadblock for wannabe homeowners who are qualified to purchase a house, but don’t let that get in the way of achieving your goal of home ownership. As a Realtor experienced in negotiating on the behalf of my clients, I wrote this blog to help those understand how I can help you financially purchase a home. Not every agent is good at doing this, so if you’re looking for an agent that can get you the best deal, then I’d love to help you or refer you to somebody that can!
How does it all work?
So, how does one go about making offers on homes and having their closing costs partially or fully paid for? Let’s do some simple math. A seller lists their home at $300,000 and you LOVE the home. However, you know that the seller will not accept an offer for anything less than the listing price and you need your closing costs paid for. Your loan officer gave you an estimated closing cost amount of $6,000. You are willing to put $1,000 down for the earnest money deposit (to show that you’re a serious buyer and to hold the house), but you’d like that money back at closing about a month from when you make the offer for other expenses. Your minimum offer should be $306,000 and asking for $6,000 back from the seller at closing. This means that when you close on the home, you will receive $1,000 and the home will be yours. Adding in the $6,000 is crucial so that the seller gets what he/she wants and you now own the home with very little money put into it up front and out of your pocket!
Does this make sense?
Now that you understand how this all works, the first thing that we need to do is the common sense check. We have to make sure that the total purchase price is at a number that the appraiser will likely say the home is worth. How do we do that? Your Realtor should look at comparable home sales in the area to make sure that you’re not going above the estimated worth of the home through his/her own analysis. Although your Realtor may be wrong on the value of the home, most times he or she will have a good idea of what the home will appraise for and if it is feasible to make an offer for that purchase price. Additionally, you have to take in consideration the competitiveness of the home. If there are multiple offers on a home and you’re making an offer that is asking for closing costs getting credited back to you, then you have to make sure that the “net amount” for the seller will still be more than the next highest offer. Knowing that there is a ceiling for the home (the estimated appraisal price) and that there is a minimum net amount for the seller (the highest offer for the home on the table), you have to offer accordingly and your Realtor should be able to assist you in this decision!
1. When making an offer with a credit back to you at closing, you have to understand that your offer is not as strong as it would be without asking for the credit. This is important to understand that it is very possible to get outbid on your offer to purchase a home.
2. If you are able to pay for all of your own closing costs, I always recommend it with homes that are competitive in a competitive market. Even if you can pay half or a portion of your closing costs, it helps strengthen your offer to ask for the least amount possible for your financial situation.
I hope you found this post helpful and insightful. If you have any questions then please feel free to reach out or subscribe!