Depending on the cost of a home, the closing cost can be $5000 or more. This includes a number of expenses:
Lender cost include Loan Origination fees (typically 1% of the loan), Application fees, Appraisal fees,
Attorney Fees
Title Search
Title Insurance - lender and optional for buyer (but highly recommended)
Recording Fee
Home Inspection Fee
Termite Inspection Fee
One-time contribution to the Homeowners Association (.5% to 1% of the purchase price)
One year upfront payment for Property Insurance (reguired in SC)
Establishing an escrow account for Property Insurance - 3 months, and Taxes - 2 months
Courier Fees
While most of these expenses are paid at the day of closing, all of the above needs to be paid prior the the buyer getting the keys to their home. How can a buyer, especially first time home buyers afford this and at the same time have money left over to fix up their new home? Have the seller pay for some if not all of these cost.
When I run into a situation that the buyer will want to either perserve their cash to fix up the home, or they don't have this kind of money saved up, I will develop a strategy early in the buying process that we need to get the seller to pay for this expense. I have been successful over the past several years in accomplishing this for my buyers. How? Sometimes the seller is highly motivated and is willing to concede a number of terms to get their home sold in a buyer's market. Other times, the buyer is willing to pay a little more for the house, but have the seller pay for the closing cost. Each party is looking for a bottom line that they will accept - it's just a matter of how you get there.
For instance, if the seller is willing to sell their home for $200,000, and the buyer would have to come up with $6,500 for closing cost. Then as long as the home will appraise for a higher dollar amount - say $206,500, offer the seller $206,500, but have the seller pay up to 3% of the purchase price for the buyers closing cost, including prepaids (insurance and taxes). This will net the seller about the same money ($200,305), and the buyer doesn't have to come to the closing table with very much money at all - ($6,500-3% of the purchase price of $206,500 or $6,195). In this example the buyer only needs $305 at closing instead of $6,500.
Will the buyer be paying more monthly for the loan - yes. But, at today's rates that equal to about $6 for every $1000 borrowed, or $39 a month more - just over a $1 a day in the situation outlined above. But this often works out better for buyers when they want to hold on to the cash they have saved - for their new house or whatever it is needed for.
Not only is this a good strategy for buyers, but sellers need to adopt this type of strategy to make it easier to sell their home and set themselves apart from other competition. The easier seller's make it to purchase a home, especially homes under $300,000, the more they are likely to find buyers more interested in their property than other homes for sale in their neighborhood.