Spending Your Closing Costs Wisely

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What does it actually mean for the Buyer when the Seller is paying a specific amount towards the Buyer’s closing costs? Where does the money go and how is it used? This has been the topic of debate lately and the only thing that’s clear is that it’s unclear to most buyers.

Let me start by identifying possible closings costs. Our professional contracts state closing costs can include any of the following:

  • Insurance premiums

  • Survey and appraisal fees

  • Title company fees

  • Lender charges

  • Inspections ordered by the Buyer

  • Special taxes or assessments

  • The prorated value of any remaining heating oil or propane

  • Any applicable fees from local municipal or government agencies

  • Commission to the Buyer’s broker

Don’t let this list intimidate you. Easier said than done, right? Your purchase may not be subject to all of these. Each sale is different depending on the location and condition of the home, the lender, the type of loan program used to finance the property, the Brokerage, and other unpredictable variables can affect the amount of closing costs the buyer is assessed. This is why it’s best to shop lenders, insurance companies, and other real estate professionals to get the best deal…. You can find a more detailed explanation of this in my last blog.

Moving forward, what do these charges mean when the Seller is paying a portion of the closing costs? Buyers are often under the impression that all of these fees will be charged to the Seller, so when they see it on their settlement statement, it immediately raises a red flag. Here’s how I calm the storm:

The Buyer is still being charged for these items, but the seller is giving a credit of a predetermined dollar amount to offset these costs. Think of it as a gift card. You’re giving a gift card for $100.00 to Target. You grab your cart and start your shopping, filling your basket with items on your list. You get to the checkout counter, and then what? The cashier rings up your items, right? You’re still being charged for those items, but you’re paying for them with someone else’s money. Same goes for closing costs. The Seller technically isn’t paying the associated closing costs, they’re giving you a credit (gift card) for you to pay for those items.

So, when you’re faced with choosing a lender or an inspector, or anything that could generate a cost that you will be charged for, it’s smart to shop around so your “gift card” goes farther!