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Closing Costs: Too Much For You? Get Help From Home Sellers!

By Gina Pogol
Mortgage Credit Problems Columnist


Financing a home isn't cheap. There are origination fees, discount points, title charges, appraisal expenses, and other lender charges. In addition, you have to prepay your property taxes, home owner's insurance, and homeowner association dues, if applicable. If you get a bad credit mortgage, it gets even more expensive--your interest rate is higher, and it costs several points to get it down to something you can be comfortable with. Even conventional financing is more expensive, thanks to risk-based pricing, which makes a bad credit home mortgage very expensive.

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Bad Credit Mortgage Closing Cost Help

Fortunately, sellers expect to negotiate when they sell their homes. And it makes little difference to a seller's bottom line if you ask for a 6% reduction in your home's list price or make a full-price offer and get 6% worth of help with closing costs instead (there is a minor adjustment for real estate commissions, which your agent should be able to calculate). So, on a $300,000 home purchase, you could get up to $18,000 in help from the seller paying your closing costs and prepaid expenses. Your only limitation (besides what the seller is willing to agree to) is what may be imposed by lenders (FHA allows 6% today but will probably revise that to 3% in 2010). So when shopping for a loan, especially a bad credit mortgage, ask the lender upfront about what seller concessions are allowed. You can compare several mortgage quotes by completing the online form on this site.

Bad Credit Mortgage Lenders May Allow Higher Seller Concessions

Bad credit mortgage lenders aren't bound by FHA, Fannie Mae, or Freddie Mac limitations (Fannie and Freddie limit seller concessions to 3%), and may allow higher concessions than FHA lenders. Extra concessions allow you to buy your rate down and pay less interest. When shopping for a bad credit mortgage, make this a major consideration. In addition, paying fewer closing costs can make it easier for you to get approved for your mortgage. FHA gives extra consideration to those who can come up with a higher down payment or those who have enough in the bank to cover several months' expenses (these funds are called reserves). By having someone else pay your closing costs, you free up money for a bigger down payment or an emergency fund.

Your Home Appraisal

The property appraisal, which is required to get a mortgage, can make or break your home purchase. The home has to appraise at the sales price or more regardless of whether you get seller concessions or not. This is to make sure a seller doesn't artificially inflate the sales price and then give you concessions. Using an experienced and professional real estate agent is key; he or she can advise you how much the property is likely to appraise for and how many concessions you might be able to negotiate.

Sources

http://freakonomics.blogs.nytimes.com/ / http://www.fhaoutreach.gov/ / http://www.hud.gov/

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