There are quite a few fees associated with purchasing a home. Referred to collectively as closing costs, these fees can total 2 to 7 percent of the home's price. One way to save money on these costs is to get the seller to pay some of them. Here are two things you can do to convince the seller to help out with closing expenses.
Extol the Tax Benefits
Sellers want to make as much money on the house sale as possible, which is why they may not be excited about paying closing costs, especially if their homes are located in high demand areas. So one way of getting the seller on board with contributing to the expenses is to show there's a financial benefit to doing so.
In particular, some closing costs are tax deductible, which can help reduce the seller's tax liability for the year. However, for this to work, it's important the seller understands which closing costs are tax deductible so he or she can maximize this boon.
Out of all the costs associated with closing on a home, only the following can be deducted using the IRS form 1040 (i.e. itemized deductions):
- Real estate property taxes – any taxes assessed by the county that come due at the time of the sale
- Mortgage points – a type of prepaid interest that reduces your interest rate
- Mortgage interest – actual interest charged during any partial month prior to your first mortgage payment coming due
- Private mortgage insurance – a type of loan insurance that pays out if you default; usually required if you put down less than 20 percent
To ensure the seller qualifies for the appropriate credit, it's important to state what the money is going towards. For example, if the seller is paying the real estate taxes, this should be clearly stated on the contract or check to avoid any issues with the IRS.
Offer to Close Quickly
The other thing you can do to make it more appealing for the seller to pay some closing costs is to offer to settle faster. This may work in situations where the seller wants to unload the house as fast as possible. For instance, if the seller is relocating to another state for employment, he or she may be on a tight deadline. Therefore, essentially paying you to move faster may be in his or her best interests.
Be aware, though, closing faster may mean eliminating some contingencies or forgoing important aspects of the sale. For instance, you may need to settle for only getting a general house inspection instead of having a slew of experts (e.g. pest control, roofing contractors) look over the home for problems. Be sure you can live with the consequences of a quick closing before offering this option.
For more tips on getting the seller to pay some or all your closing costs or help with finding the perfect home for sale, contact a real estate agent.