Hey, Kyle, here with
WintheHouseYouLove.com. You can get the seller to pay
your closing costs or at least a portion of your closing costs. And this is really helpful because a
lot of times people save up for the down payment for their home, but they often
forget about that they have closing costs. And these are things like your appraisal
your title, search, title insurance. You also have things like recording
fee from your county taxes and homeowner's insurance as well. And so we can actually negotiate for the
seller to pay a portion of this, and I wanna show you how it works cuz there are
some limitations you need to be aware of. And then I'm gonna show you the math and
kind of a hidden trick that you can use that a lot of people aren't aware of. So first, real quick per to this is
it's less cash outta your pocket. For a lot of people, as homes have
been increasing in value, the down payment also increases and it makes
it a lot harder to save for the money that you need to purchase your home. The downside to this is it makes
your, offer less attractive. Now, this isn't too big of a problem
in what's called a Buyer's Market, and we're seeing the market right
now transition from being a really strong seller's market into being
more neutral to buyer territory. And a buyer's market is
where buyers have control. You're able to come in with different
types of loans that sellers normally maybe would've been hesitant about. Or different offers that
are more in your favor. So things like asking for
credits from the seller. So this is how this works very simply. Let's say we have a purchase price. We're looking at a home that's $425,000. The down payment on this,
let's say is $12,750. Okay? Now for closing costs, I'm gonna
put in an estimate here of 6,500. This is going to change
based on where you're at. This is why you really do need to
get a quote from a loan officer, and you can do that from us. You can go to WintheHouseYouLove.com
for a console and look at all your numbers up front. Now what we can then do because
we're on the line for these two numbers, 12,750 and $6,500. That would be the money that we have
to pay upfront to purchase this home. What we can do though, is we can
ask the seller, can you take 1.5% of the purchase price and give
that back to us as a seller credit. So in this instance, it would be $6,375
that we could use towards our closing. So then what we do is we take $12,750
plus $6,500 minus $6,375, our seller credit, and that gives us the total
that would be due at closing $12,875. That saves us, about $6,300 out of pocket. Okay, so really quickly,
let's cover closing costs. I think this confuses a lot of people
because people are used to hearing about the down payment, right? Maybe 3% down on a conventional
loan is the minimum. That's what we did on
this example right here. So you hear about that. Maybe you hear about 20% to remove
mortgage insurance or people have a down payment amount that they're
saving towards based on the loan that they're going to be getting. What a lot of people forget about or just
forget to talk about is the closing costs. And closing costs are on
every loan with every lender. Even if you're buying in cash,
you still have closing costs. Okay? Now, unfortunately there's a lot of
marketing around closing costs that can be a little I don't wanna say
intentionally deceitful, but it can be a little misleading for a lot
of people because closing costs. Often things that the lender
isn't charging, right? So when you get your loan estimate,
this is a document you're gonna get that shows you all of your closing costs. Every lender has to give this to you
when you're under contract for a home. And the top left side is where
the lender will show you their fees, but then, the rest of the
document is all third party fees. Third party fees are going to
be things like your appraisal. You have a title search of
the home and title insurance. Your county might charge a recording fee. You might have to pay transfer taxes. You're also going to have property taxes. These are likely going to be
put into an escrow account. Where the lender pays us on your behalf. Same thing with insurance as well. You'll pay 12 months of your insurance
premium upfront, and also insurance put into an escrow account where
the lender pays that on your behalf. So you have closing costs with
every lender, every loan type. Okay? And people don't budget for this
really well, unfortunately, they save for the down payment and then
they get surprised by closing costs. And please don't be
surprised by closing costs. What you wanna do is get a
quote from a lender, right? You can get a quote from us right here. And then you can start to strategize. Can we have the seller
pay a portion of that? So two to 3% of the purchase price
is usually a good rough estimate. The hard part with closing costs is
it's not one fixed number because it's all these different types of people
who are charging these costs, right? It might be the county, it
might be your insurance. And what changes here? is your insurance may be different
than someone else's, maybe because of you have three pit bulls and someone
else has no pets, so you're gonna have a higher insurance premium that
factors into your closing costs. You also might be in a state with
high property taxes, that's going to increase your closing costs as well. So one rough estimate
isn't going to be the best. You really do need a quote. So here's how getting the seller
to pay your closing costs works. First, you ask the seller for
a dollar amount or a percentage amount at the offer stage. Okay? This is before you're
under contract for home. This is when you're shopping for a home. You're talking with your realtor
and you say, I love that house. I wanna write an offer. And then in the offer you can say, I wanna
buy the home for $425,000, and I want them to give us 1% as a Seller Credit. This is also Called Seller Concessions. Seller credit can be called
a couple different things. Your agent is then going to
help you write that offer. Now, if you would like a referral
to a good agent, I work with the top referral network for real estate agents. You can go to HomeandMoney.com/kyle
if you'd like to get connected. So your agent's going to
help you write this offer. Then ideally the seller is going to
accept and say, that all looks good to us. And then at closing, you get a
credit to offset your closing costs. Okay, so this credit then
comes from this seller. All right? So there are limits to this space on
the loan type that you're looking at. With conventional loans there's
several different circumstances. So let's cover FHA, USDA and VA. For VA loans, 4% is the maximum. This is again, 4% of the purchase price. With USDA 6% is the maximum, FHA 6%
is the maximum, for a conventional loan with less than 10% down 3%. Conventional loan, when you're
putting 10 to 25% down is 6%. And a conventional loan where you're
doing greater than 25%, you can get 9%. And then if you're doing a conventional
investment property, 2% the maximum. Now, it's really important to note
here, you can't get cash back, okay? The Seller Credit can only
cover your Closing Costs. It cannot cover your down payment, and
it cannot exceed to the point where you get cash back from the seller. All right? So let me show you. How this kind of hidden
strategy works, right? Because we talked about one of the big
cons to this is that asking for credits makes her offer less attractive and a less
attractive offer has a higher likelihood of not being accepted by the seller. When we're submitting an offer to a
seller, we want them to accept it. So we want to give terms that are actually
attractive, that they want to accept. All right? So if we put in our offer and
the seller won't give a credit when we're negotiating, we can
use a strategy to make it easier. So this is how this works. Really quickly here, just a
demonstration in a spreadsheet. So this is the asking price for the home. Maybe we see it listed
online for $400,000. All right. Let's say we're not asking for
a seller credit and the seller is going to net $400,000. Now the seller probably still has
a mortgage and they have other closing costs that they have to pay. We're not too concerned about that at all. So if we're doing 3%
down, that'd be $12,000. Let's estimate our closing cost to 8,000. And again, no seller credit. So we would have $20,000 due
at closing to buy this house. Okay, now I'm gonna get down into
the loan amount and stuff like that. Actually I'll cover it now,
let's say on a 30 year loan. And we're looking at, let's say an average
six and a half percent interest rate. We'd be looking at a Principal
and Interest payment, no taxes or insurance, just Principal
and Interest of about $2,400. Now, this is what a lot of people do. They see the home and they say,
okay, I'm gonna offer $400,000 and then I'm going to ask for $6,000. In closing costs. Now what then happens is the
seller is going to get $6,000 less. They're going to net $6,000 less. And what does this do? It makes the offer less attractive. Now, you absolutely can do this. There are definitely instances where
you come in just at the asking price and you ask for seller concessions,
and the seller makes less money and you still win the offer. That's absolutely a possibility. I just wanna show you from a negotiation
perspective how the seller perceives this. Okay? Now, in this. 3% down, again, $12,000, $8,000 closing
costs, and we got a $6,000 credit. So now we only have to bring $14,000 to
the closing table instead of $20,000. So this makes it a lot easier for
you to be able to purchase a home. Now the alternative strategy that we
can do here is we can actually wrap closing costs into the purchase price. So we can go to $406,000,
ask for $6,000 in credit. So we raised it by the
amount that we're asking for. Now the seller is going to net exactly
what they said they wanted in the. And please don't hear me wrong in this. This is not the only
thing that you can do. You absolutely can win
an offer just like this. It really is gonna depend on your
market and working with an agent who understands your market better, I
just want to show you that this is what is happening in the seller's mind
when they're looking at your offer. They don't care that you want 6,000
or need 6,000 or need closing costs. What they want is their
bottom line number. That is ultimately what a seller wants. So if we put in an offer like this
and they don't accept it, we can come back and actually say, okay, would
you be willing to, raise the price, but just give us that money back. They still net exactly what
they wanted in the beginning, so this doesn't impact them. Now we then have a situation
where a down payment, right? We raised the purchase price,
so it's slightly higher. Same closing costs, same credit. Now we're bringing $14,180 to
the table instead of $14,000. So it raised $180 to get that credit. Now then the question becomes, okay, we
wrapped in those closing costs, basically into the purchase price and into the loan. So is this an effective
long-term strategy? Again, if we look at these numbers here,
we can look at the loan amounts on each. This one is obviously higher because
we raised the purchase price. So Principal and Interest,
these two are the same. This one increases by $37. So we pay $37 more by
doing this per month. Okay? Then when we look over five years,
this is the interest over five years, is to do this strategy. We paid an extra $1,800 in
interest over five years. Now, if we consider that against an
average historical appreciation rate of 2% over five years, that $400,000
home then turns into $441,000. So when you're looking at these
options here what a lot of people will do is they'll just. They just keep running to
this brick wall of saying, why will no one accept my offer? But they may not be considering
what the seller is getting. And then when they look at these options,
they might say yeah, but I'm not going to pay an extra $1,800 over five years. But really what we're looking
at with real estate is the opportunity cost of not doing that. Again, I'm not saying this is a strategy
you have to do, it just is a strategy that exists and a lot of people use success. , would you pay $1,800 over
five years to secure an appreciation of close to $35,000? Is that something you want to do? To me, that makes
mathematical sense to you. It still makes mathematical sense, but it
may not be something that you particularly want to do, and if so, that's fine. One note with this strategy is the
appraisal must match the increased price, so this only works if our appraisal
then is going to come back at$406,000. Okay? If we offer 406 and it comes in at
400, this strategy will not work. But this is a strategy again, I've seen
done time and time again because the seller gets what they want, the buyer
gets what they want, and it ends up being a pretty good compromise in between. So why do it? , a lot of buyers plan for the down
payment, but not the closing costs. Can't tell you the amount of times that
I've heard stories from buyers where they're like, we didn't even know that
closing costs exist, and yes, they can be just as much as the down payment. In some instances in a buyer's
market, it allows you to bring less money to the closing table so
you have more money for repairs, maintenance, and an emergency fund. I see this with a down payment a lot where
a lot of people think, oh, I need to put more money down, and somehow that makes. There's this I win somehow. There's no stickers. You don't get any awards for if
we're meeting some arbitrary number. Okay. Having money set aside, making sure that
when you buy a house you don't completely drain your checking or your savings
account is really the best strategy because things are going to happen. Your furnace is gonna break down. You might need to change your locks,
you're gonna need to paint, you're gonna need to buy a new furniture. There's things that happen that you
need to have money set aside for in an emergency fund to make sure that if
something goes wrong, you don't have to put it on something like a credit card,
which is gonna lead you down a pretty rough financial path in the future. Now you can also do this with any
down payment assistance programs. So where your down payment either a
portion or all of it could be covered. And you can also use the
closing cost credit from the. For your closing costs. Okay, so here's how to use it. The loan officer is going to
apply it, so you're not gonna get like a check for this money. What ends happening is it's gonna
be listed on your loan estimate and your closing disclosure. your loan officer then is going
to put that as a credit in there. And this can help pay down
again, your closing costs. It can also be used to
help with buy downs. You can do temporary or permanent
interest rate buy downs. I have a full video on, 2-1 buy
downs or temporary buy downs. If you wanna watch that. And then it can also be used
as a credit towards repairs. And an invoice can then be listed, so for
instance, if something that needs to be fixed with, let's say a furnace, and then
there's an invoice for it that can be put on your settlement statement at the end. And the seller credit can be
used to cover that as well. Again, not for the down payment. Okay? If you have a credit left over there's
a couple things that you can do. So maybe we ask, maybe we ask for the
full we asked for 6% seller credits, but your closing costs were not that high. What we can do is either. adding things on from the
seller, like a home warranty. Maybe that's an offer or maybe
something we can get to add in there that, that can be paid for, right? Because we wanna use that money. We don't wanna just give
it back to the seller. We could also buy down the interest
rate again with a temporary or permanent buy down, or we could just reduce the
credit and the price as well, right? So if we have let's say
a thousand dollars left. We can just say, we'll reduce the
credit by a thousand dollars and then reduce the purchase price by a
thousand dollars if you want to do that. So three quick steps to make it happen. Number one is please get
a full mortgage quote. Don't just go off of 2%, 3% rules of
thumb because you don't wanna just use rules of thumb when you're making an
actual accurate plan for your future. Let's run off of actual numbers
so we can make realistic plans. The best way to get a quote
is reach out to my team. I have a team license in all 50 states. We'd be happy to help. We do free home loan consults
at WintheHouseYouLove.com. We'll show you all your decision making
numbers up front, help you qualify for loans so you can move confidently
forward when you're buying a home. Also, then talk to your
agent about the strategy. Do you live in a market
where this is possible? Are you in a really competitive market? This may not work. Are you in a slower market? This likely will work. Then talk about the strategy of
are we gonna come in at asking price and then the credit? Do we need to make our offer
stand out a little bit more? There's tons of different strategies. You can work with your agent to
see what's the best way for your deal to work in your market. And then finally, is to make an offer. So when you're making an offer,
your real estate agent is going to write up the contract. With everything that you talked about
in there with what kind of strategy you want with your seller credits. So the next video for you to watch is
this video on FHA loan requirements. It's gonna show you everything
you need to know about if an FHA loan is right for you.
