Every Buyer has different Needs and Wants.  That is no different when it comes to closing costs and   pre-paids.

There have been a few incidents in which agents have asked for too much in closing costs. So let's go through a few scenarios.

There are two questions that need to be knows.  How much will the buyer need to pay in closing costs and pre-paids.  How much the loan program (FHA, VA, Conventional) will allow the seller to pay.

Let's talk cash first. 

If a buyer is paying cash, the amount of closing costs is greatly reduced, because there are no lender fees.  There is also no escrow account to be funded, so the buyer will likely receive a credit for the taxes due by the seller.  With a cash buyer, instead of asking for seller concessions, reduce the offered cash price, and the buyer can use their cash for their own closing costs.  Can the cash buyer close in 10 days?  That is often a strong negotiation position.

I remember a scenario in which a cash buyer asked for $5,000 in closing costs.  When it came time to close, the total buyer closing costs were about $1,200.  To make a long story short, we had to scramble to find how to use that money.  And..... in the end, the buyers agent had to reimburse their buyer $1,000 out of their commission.  

Loan Programs

FHA will typically allow up to 6% in seller concessions

VA will typically allow up to 4% in seller concessions

Conventional is different, depending on the amount down, and if it is a Fannie Mae product, or a portfolio loan of the bank.  On Conventional loans, email the lender and ask what is the percentage you can ask for in seller concessions on this particular buyers loan.  Conventional closing costs assistance typically ranges between 2% and 6%.  Again, depends on the lender and the conventional loan program.

Just because you can ask for 6% in concessions, doesn't mean you should.  Typically closing costs are 2% to 4% of the sales price.  So asking for 6% will be too much, and the seller will keep the excess.  Ask the lender for a fee sheet, or ask the lender what is the total closing costs and prepaids the buyer will have to pay.  Then work off of that number.  How much is ultimately asked for is up to the buyer, and how much is ultimately agreed to is between the buyer and the seller.

Just recently an agent negotiated $6,900 on seller concessions on a $200,000 home.  It was conventional.  The limit in seller concessions was 3%.  Did you do the math?  The most the buyer could receive in seller concessions was $6,000.  So an amendment had to be done REDUCING the amount in seller concessions.  The buyer lost out on $900 that they could have reduced the price amount.  Seller has no obligation to agree to any reduction in price.

Having a good Realtor that knows these nuances is very important.  Better yet, having a mortgage professional that you can count on for quick responses is even better.

Have questions?  You can always reach out me.