WHY WON'T THE BANK PAY MY CLOSING COSTS FOR A SHORT SALE? 
When you write an offer on a short sale, the bank is losing thousands and sometimes hundreds of thousands of dollars. The only thing the bank cares about is their net - how much money they are receiving after all the costs are deducted from the sale. Very often, this doesn't include any room for paying closing costs.
Astute buyers and their agents will offer to increase the offer to pay closing costs, but the bank sees this as more money they could put in their pockets to help cover their loss. They only want to pay the traditional Seller closing costs and any lender-required costs that the Buyer can't pay for with certain loans, such as VA and FHA.
Bank Policies
Some banks have a policy that they will not pay buyer closing costs no matter what. Even if the buyer is willing to add it to their net. Even if the house will appraise. They just don't want to do it.
Why did the bank pay my friend's closing costs?
Some banks don't have a policy against paying buyer closing costs and sometimes the loss isn't so great, so the bank is willing to pay some buyer closing costs as long as the net works out for them. Also, be sure your friend was buying a short sale, not a foreclosure. Banks are much more willing to pay closing costs for a foreclosure.
Some surprises aren't fun.
There was a contract on a short sale and the offer was submitted with a closing costs request. The buyers waited almost 90 days for the answer from the bank. After waiting three months, they were told the bank wouldn't pay closing costs. That was not a fun surprise. Fortunately, the lender could roll the closing costs into their loan for an increased interest rate. But what if that were not possible?
If you can gamble on closing costs, then go ahead and ask. But don't be surprised and have a Plan B in case the banks says No.
RE/MAX Executives - Woodbridge, VA
- "My Experience Isn't Expensive - It's PRICELESS"
Sharon I always warn my buyers another definition of short sale is surprise
Sep 16, 2012 11:36 PM
Coldwell Banker Heart of Oklahoma - Purcell, OK
Broker - Licensed to List & Sell - 405-990-8862
They should understand what a short sale is before making an offer. I explain it the same way, "If you offer enough they will PROBABLY pay CCs. But all they care about is the net!"
Sep 16, 2012 11:49 PM
people first...then business Ran Right Realty - Riverside, CA
agent & author
Everyone assumes they have nothing to lose by asking for the closing costs....Thus the ploy which can drag out the transaction
Sep 16, 2012 11:50 PM
Coldwell Banker Residential Brokerage, Lancaster PA - Lancaster, PA
Lancaster County PA RealEstate Expert 717-951-5552
Frank & Sharon, thanks for the insight. Short-sale banks are really being short-sighted by refusing to consider closing costs. They could be losing qualified prospects and wasting time waiting for another offer.
Sep 17, 2012 12:01 AM
Eagle Ridge Realty / Signature Homes & Estates - Gilroy, CA
REALTOR and Broker
Best bet is to not count on the banks paying those costs. Sometimes, I think people get the short sale process and buying an REO confused, especially when Fannie and Freddie offer incentives, like paying for closing costs to more their properties.
Sep 17, 2012 12:34 AM
Global Property Systems Real Estate - White Plains, NY
Real Estate | Done Differently
Great information. Short sales and closing costs are a complicated business.
Sep 17, 2012 12:35 AM
Brown Realty, 210-789-4216, - San Antonio, TX
Texas REALTOR, San Antonio Military Relocation
Hi Frank and Sharon. Thanks for pointing out why closings costs may not be paid for Short Sales. It always best to have a Plan B as you have suggested if the buyers need closings costs.
Sep 17, 2012 12:58 AM
Goran Utvic Real Estate Broker/Construction Consultant - Chicago, IL
Chicago 2 Flat Specialist
Excellent information Frank And Sharon. To wait the 90 or so days just to get your short sale offer rejected because the buyer wants closing costs paid would really stink!
Sep 17, 2012 01:05 AM
C21 Solid Gold Realty, Brick, NJ, 732-920-2100 - Howell, NJ
REALTOR®, Brick & Howell NJ Homes for Sale
I still think it is amazing how many people expect another to pay for their stuff.
Housing is one of the only situations where the financing party will give money away (dare say none of us would!) and yet it is still not enough. Sure, ask for "it", but Plan B should be to get over it and move on toward closing.
If you can't afford to buy the home, how exactly do you expect to stay there?
Bruce
Sep 17, 2012 01:12 AM
Family Abstract, Inc. - Horsham, PA
Many of the short sales banks have already been in full due to the mortgage insurance we as Amercians allowed them to take for pennies on a dollar. The banks have no incentive to move property that they have already been made whole on. That what the "MIP" insurance did for the lender, it paid the borrowers debt in full, using the money it guaranteed from the government.... AKA ME AND YOU!!
Sep 17, 2012 01:14 AM
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience
Frank and Sharon: You do a good job explaining that there are no hard and fast rules regarding real estate transactions anymore. One cannot compare one transaction to another. It's simply impossible these days. Exactly why it's imperative to work with true professionals that can advice and advocate for you throughout the entire process. Congrats on the Feature!
Gene
Sep 17, 2012 03:01 AM
RETIRED / State License is Inactive - Portland, OR
Oh this was one is a good one Frank/Sharon! I have the conversation with buyers all the time that the seller may accept the offer WITH seller contributed closing costs . . . in a short sale scenario it's probably NOT going to fly with the lender -- for the reasons you state!!
Sep 17, 2012 05:44 AM
West Coast Realty Division - Murrieta, CA
Residential Real Estate Agent serving SW RivCo CA
In my opinion, it's a waste of time asking for buyer's closing costs on a short sale. It just disappoints the buyer when they find out 4 months later the seller's lender won't pay their closing costs. Go figure. Buyers should be prepared to pay their own way when buying a short sale.
Sep 17, 2012 06:21 AM
Cactus Mountain Properties, LLC - Tempe, AZ
GRI, Associate Broker
Very good explanation! Most banks are held hostage to the investor that backed the loan. It never hurts to ask for the closing costs to be paid. Just go into it not expecting to receive. If it gets approved, count it as a gift!
Sep 17, 2012 07:19 AM
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL
Debbie, we have Buyers who are choosing new construction over any resale home just because they need to have their closing costs paid.
Ginnie, there are some instances where the servicer for the investor will and is able to pay closing costs, but it should be a bonus, not a necessity. Yes, some can roll it into the loan, so the deal can still go through if the buyer can afford the payment.
Sep 17, 2012 10:04 AM
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL
Chuck, there is no set pattern that's for sure. It's the wild wild west when it comes to short sales.
Michael, that is true, but rules and policies can change mid-stream and banks can be sold mid-stream. There are no guarantees.
Rich, oh my - just goes to show you there is no way to predict what they will do.
Corrine, short sales are for people who are fairly strong financially, not for those who can barely afford inspections, etc.
Harry, exactly!
Karen, I love it! Will remember this definition for the next short sale buyers.
Than, yes they understand, but they still want to ask.
Richie, yes it will drag out the tranaction if the bank doesn't agree to the terms of the HUD-1 sent to them.
Brian, yes, it is costing them money to hold the house and the closing costs might even it out.
Gary, most buyers don't even know what a short sale really is, so they are likely to confuse the incentives as well.
Sep 17, 2012 10:59 AM
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL
Vanessa, short sales are not for the faint-hearted.
Jerry, Plan B is a must with short sales.
Goran, it was not fun, but we did have a Plan B.
Bruce, I find that many young buyers want to spend their liquid cash on improving the house.
Glenn, this is a little known truth, and why the PMI companies can stop the deal by not agreeing to an amount that is offered.
Gene, yes it takes a creative negotiator to bring it to the closing table.
Carla, it seems many of us have thesd discussions, as we should, and sometimes it works and sometimes it doesn't.
Pamela, agreed. But try to tell that to some buyers. They think they are the exception.
Barb, getting closing costs is a gift for sure, but not a definite. The banks are servicers and they must answer to the invester.
Sep 17, 2012 11:39 AM
Reverse Mortgages SIDAC, LLC, NMLS #1790592 - Saint Paul, MN
CRMP, NMLS #342859
Providing buyers "worst case" scenarios so they can have a plan B is great customer service and pays off in the end. And it never hurts to ask because you have a 50% chance of getting a yes, but one needs to be prepared for the no too. Great advice!
Sep 17, 2012 01:10 PM
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL
Beth, thanks! Plan B works in pretty much any situation, but it's a must in short sales!
Sharon
Sep 18, 2012 12:49 PM
Barcode Properties - Encino, CA
Realtor® • GRI • HAFA • PSC Calabasas CA
Lenders are in the business to make money, not spend it. The lender is already likely taking a bath on the sellers’ loan, and will be unwilling to pay for much in the way of closing costs. This is important to note because if the preliminary HUD arrives and it shows the “seller” paying closing costs that the lender won’t allow, the whole transaction is at risk. Even the purchase agreement is between the seller and the buyer, the lender must approve all terms. These include closing costs. Typical closing costs a lender will NOT pay include:
- Title evidence
- Utility bills
- Repairs (don’t even ask!)
- Well/septic tests
- Home inspection report
- More than 3 percent of the buyer’s closing costs( here in CA we don't ever see that they pay)
- Appraisal re-inspection
- Courier or wire fees
- Recording service fees
Apr 12, 2014 10:28 AM
Rainmaker
1,085,110
1,085,110
Sharon Alters
Realtor - Homes for Sale Fleming Island FL
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