Sometimes a buyer will ask a seller to pay for their closing costs. But, there could be a problem with credits for closing costs when the lender won’t allow credits to apply against some closing costs. Or when the buyer’s costs don’t add up to what was negotiated between buyer and seller. This can be a big “oops!” moment for everyone involved. For example, take a home listed at $900,000. The buyer thinks the home is worth $900,000, but needs a big credit for closing costs. So they offer $920,000 and ask the seller to pay $20,000 of their closing costs.
The problem arises if the closing costs (or the max amount that the lender will allow credits to apply to) add up to only $15,000. What happens to the extra $5,000? This used to be a big gray area because the contract didn’t address it. Well, now it does. The latest contract now states that if the closing costs (or the amount allowed by the lender) is LESS than the actual costs, then the credit shall be reduced to match. In plain English this means the seller pockets the difference.
So the lesson here is that if you are going to ask for a small amount of credits, say $5,000 or less, you are probably pretty safe that your closing costs will be at least that much. But if you are going to ask for a large credit of $15,000, $20,000 or higher, you need to really confirm with your lender and title company what your fees are going to be, and find out if the lender will allow the credit to apply to all your costs. Or, add a clause to the contract that states that if the costs are less than the credit then the purchase price will then be adjusted down accordingly. If you have any questions regarding this or any other topic, please let me know.