Can I ask the sellers to cover the closing costs when I buy a home?

By Gina Pogol
Mortgage Credit Problems Columnist

Dear Gina, I have some credit problems but was told I can get an FHA mortgage even with bad credit. The problem is the lender will only approve my loan with 10 percent down, which leaves me almost nothing for closing costs. Can I ask the sellers to pay them? - Ken, Tacoma, Wash.

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Hi Ken,

You can ask sellers to do anything. That doesn't mean they'll say yes. In most parts of the country, it's customary for buyers to pay certain costs and for sellers to pay others. Your real estate agent can tell you what those costs are in your neck of the woods. However, just because something is customary doesn't mean you have to do it that way. You can ask the sellers to pay some or all of your closing costs, and if they are sufficiently motivated to sell the property, they might say yes.

FHA mortgages and seller-paid closing costs

Sellers or other interested parties like real estate agents or home builders are allowed to pay actual allowable closing costs, prepaid expenses, discount points and other costs -- up to 6 percent of the property's sale price. Closing costs that would customarily be paid by the buyer in your area would be considered contributions if paid by the seller or other associated party. There has been talk of reducing that figure to 3 percent, which is the most that Fannie Mae and Freddie Mac allow sellers to pay. So far, though, it's still 6 percent.

Getting the lender to pay your closing costs

Another option for minimizing your out-of-pocket closing costs is to have the lender pay them. In exchange for you choosing a higher mortgage rate, the lender can pay some or all of your costs. What's the catch? Your payment would be higher, and it might be harder to qualify with a higher mortgage rate and monthly payment. In general, every 0.125 percent to 0.25 percent increase in your mortgage rate should get you back 1 percent of the loan amount to apply to your costs.

Shopping for bad credit mortgage rates to keep costs down

When trying to minimize closing costs, don't overlook the savings you can earn by shopping for your home loan. Mortgage costs can vary by a point or more between lenders; that's money you can't afford to leave on the table. That goes for your title insurance and escrow services as well. Real estate agents like to choose these vendors, but it's your money, and it's your right to shop and choose a lower cost provider.

By getting help from your seller, your lender, and yourself, you can minimize what you have to bring to the closing table when you buy your home.

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