When a home seller agrees to pay all closing costs, does the buyer need to pay for any of them up front?

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We’ve received an acceptable counter offer from the seller and they’ve agreed to pay all closing costs, up to 6% of the purchase amount (FHA loan). I understand that first year’s homeowner insurance, appraisal and inspection are included in that. Do we, as the buyer, have to pay out-of-pocket for any of those things and wait for reimbursement on the closing date? Or does the seller pay the costs as they’re accrued? We’re in Michigan, if that helps. Also, the closing costs in our good faith letter appear to be far less than 6% of the purchase price. Please indicate the source of your information (experience, profession, heard it from a friend.) Thanks for any help you can give.
I should be clearer. The agreed-upon contract states, “seller to pay up to 6% of sale price for buyer’s closing costs, pre-paids, inspections, or any other lender approved costs at close.” It’s the “at close” part I’m wondering about. They’re agreeing to pay those things (up to a %, of course) but I’m wondering will an inspector delay payment until the deal closes? I wouldn’t think so. So are we, as buyers, supposed to front that money? For instance, If a seller agrees to pay for an inspection, would the bill for the inspection go to the seller?

  1. Reply
    July 21, 2011 at 4:04 am

    You understand incorrectly. Closing costs are the lawyer’s fees, title fees, recording, etc. usually never more than 3.3% of loan amount. Prorated taxes and first year Insurance premium are pre-paids that the buyer pays. Appraisal is part of your loan cost, just as a survey is. Inspections are also your expense. If you loan has points, you pay those as well. Seller pays Real Estate Commission if that makes you feel any better.

  2. Reply
    July 21, 2011 at 4:36 am

    In Texas our contracts spell this out very clearly- perhaps your do not. You go to closing. The title or escrow company has set up a “money balance sheet” that is called a Hud – 1. The items that are normally paid under your contract by the buyer are switched over to the seller’s side- up to 6%. If the buyer has paid ahead of time- out of their pocket for something like an appraisal or credit check and that meets certain criteria that cost can be repaid to buyer from seller (on that HUD-1 sheet).

    If your costs only add up to 5% then the seller would only pay 5%. This is all settled at closing.

  3. Reply
    July 21, 2011 at 5:06 am

    You need to go the FHA site. It shows what closing costs FHA allows the seller to pay. Homeowner’s insurance is your responsibility. This is not a part of the closing costs. Your bank will require a paid receipt and declarations page at least 3-5 days before closing. When using an FHA loan, certain costs are required to be paid by the buyer. This includes your lender fee, appraisal, inspections. Do not expect to go to the closing and pay no money out of pocket.

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