It has become very common for buyers to ask the seller of the home they want to pay closing costs. This allows the buyer to come to closing needing less cash. However if the home you are buying is a foreclosure, you need to read the fine print in the bank's addendums!
In the last couple of months it has been more likely that banks will say yes to paying the closing costs, however, they will not pay "prepaids". I have had a few transactions in the last month where the bank is very specific about what they will and won't pay for the buyer. Last week one addendum was very clear that the seller would pay certain costs, such as the origination fee, discount points (not to exceed one percent), the appraisal, credit report, closing fee, title insurance, recording fees, flood certification, document preparation fee, processing fee. They would not pay for the appraisal and credit report if those fees at been paid for in advance and were listed on the settlement statement as paid outside of closing. We were able to adjust the buyers offer so that they didn't lose any money due to the seller not paying all of the costs.
I have also seen several banks that won't pay "prepaids" – that means the interest that is due from the date of closing until the end of the month, your tax and insurance escrows and the first year of homeowners insurance. The total amount of your prepaids can add up quickly if you have an insurance bill of $1000, plus starting your escrow account of 3-4 months of taxes and insurance.
From what I have been told the reason behind this is that the banks feel the prepaids (escrows and interest) are your own money and if you paid off the loan immediately, you would get that money back. They also feel that some lenders are charging all kinds of different junk fees and they don't want to pay anything that is not normal and customary. In Minnesota we have a mortgage registration tax that is paid to the county on every transaction, this was one of the fees that one bank refused to pay as every state doesn't have the fee.
Make sure you read over the addendum from the bank and if it says it won't pay certain costs, make sure you are using all of the money you are asking the bank to pay. You may want to lower your purchase price and lower the amount of seller paid closing costs, so that you don't have money that can't be used at closing. If you ask the seller to pay 3% and you aren't able to use all of that money, you won't get it back – it goes back to the seller.
Leslie Vanderwerf, Advisors Mortgage - lvanderwerf@advisorsmtg.com – Website
