Short on closing costs

April 20, 2009 5:56 PM

Short on closing costs. We're bidding on a house, have the 20% deposit, but are short on closing costs (by about 10k). Some options are out; for example I cannot take another loan until we have signed. A friend has suggested that we ask the seller to pay the costs and then we pay more for the house. Has anyone done this? Thanks!

I guess we're then paying interest on the closing costs, but it's probably worth it. Any other creative (but legit) ideas very welcome.

posted by carter to Home & Garden (12 answers total)

Best answer: It's very common on contracts for buyers to ask for closing cost help, and those dollars get tacked on to the purchase price. Your realtor should be able to walk you through this whole process.
posted by Thistledown at 6:03 PM on April 20, 2009

We did this. It was for less money, but real estate in my area is pretty cheap. Our realtor said it was extremely routine, and the seller didn't seem to have any problem with it.
posted by Stacey at 6:06 PM on April 20, 2009

You could even ask to have them pay some closing costs without raising the price; when we sold our house, we were happy to pay some closing costs for the buyer for various reasons (they wanted to close quickly, took the house as-is, saving us from doing some cosmetic work we expected to, and so on).
posted by not that girl at 6:11 PM on April 20, 2009

Best answer: We did this, but there are apparently some harder limits now on how much you can get. Three percent is pretty common, six is probably about as far as you can push it. The house is going to have to appraise at the total amount you're mortgaging, and if you're competing with other offers it's probably going to make yours less attractive.

If you can still get the mortgage at a reasonable rate without the entire 20% down, that may be the better way to go.
posted by Lyn Never at 6:17 PM on April 20, 2009

Yep, you could ask the seller to pay the closing costs then raise the price by a corresponding amount. Or, as not that girl pointed out, without raising the price.

Have you checked into getting a second loan at the same time? I used to do real estate law and have gone over the paperwork for hundreds of closings. Many of those closings were for deed, first mortgage and second mortgage all at the same time.
posted by LOLAttorney2009 at 6:21 PM on April 20, 2009

Response by poster: Wow, went away and had a bowl of cereal, and already some help - thanks everyone! We will probably ask for about 3%, I think. Of course we have to see if the bid goes through first.
posted by carter at 6:26 PM on April 20, 2009

Response by poster: LOLA - I can get a loan as soon as we close, but not before, apparently. Not sure if that is the law where we are (Pennsylvania), as in other places I have been offered 'bundles' of loans at the same time (e.g. 1 for the mortgage, 1 for the 20%, etc.). However our lender emphasized that to get the best deal for the mortgage, we were better off just having one iron on the fire at closing time.
posted by carter at 6:29 PM on April 20, 2009

If you haven't already, you might want to check with Bank of America. I know someone who is about to buy a house, and he's getting pretty much zero closing costs in addition to other nice perks.
posted by Stylus Happenstance at 7:06 PM on April 20, 2009

I don't have a source other than my realtor and mortgage broker, but I've heard that it's much more difficult to do the "bundled" or 80/20 loans than it used to be. Seems like these sorts of work-arounds are becoming less common as the banks are trying to dot their i's and cross their t's a bit more closely.

As to the main question: I'm in the process of buying a house, and we just asked for $8K in closing when we made our offer on the house. We ended up paying a bit more than we initially offered (because of competing offers), but the seller is still covering the closing costs.
posted by pril at 8:13 PM on April 20, 2009

Can you just put less down? I was recently approved for a mortgage and told I could put as little as 5% down if I wanted.
posted by fshgrl at 9:08 PM on April 20, 2009

Wait a sec... You're short on closing costs by about $10,000.00? I'd first get a different loan. What possibly could you have in closing costs that add up to more than $10k? Typical costs are:
Points. 1 or at most 2% of the loan, but if you have 20% down you should have been able to find a loan with 0 points.
Real estate taxes escrow - 6 months worth.
PMI sometimes required to pay 1 year in advance, but you are putting 20% down, so no PMI.
Homeowners insurance- sometimes required to pay 1 year in advance
Legal and bank fees... You could get really hosed here, fees could come up to a couple of thousand.
posted by Gungho at 5:59 AM on April 21, 2009

Response by poster: What possibly could you have in closing costs that add up to more than $10k?

Basically, $12k of Pennsylvania and Philadelphia real estate transfer taxes :( which we're splitting with the sellers. Plus other taxes for the rest of the year. All other costs are quite reasonable.

We have a good loan offer, but need the 20% down to guarantee it. Also, we cannot take out another loan before signing (although we can get a loan immediately after). It's the RE transfer taxes that are the problem here.
posted by carter at 6:59 AM on April 21, 2009