I get the question all the time from my first-time Buffalo home buyers, and I know it's because of those silly real estate shows. You know, the shows where the buyers can only look at three properties before they pull the trigger and make an offer on their "dream home."
So this is the question: Will the seller pay for the buyer's closing costs? The answer here in Buffalo (reality, real life) is no it doesn't happen.
As a first-time Buffalo home buyer, you will undoubtedly pay for your own closing costs. The biggest chunks of the closing cost is your down payment, one year’s taxes and insurance paid up front, and the dreaded PMI if you do not have 20% down.
There are loans that allow you to obtain a sellers’ concessions, which will help with the huge expenses. Personally, I hate that it’s called a "sellers" concession. Here is how it works.
If you are going with a minimum down payment of 3.5% of an FHA mortgage, you are allowed to take 6% seller concessions. I have seen some other loan programs in which the buyer is able to take 3%, so, if you are approved for a loan of up to $110,000 and you purchase a home for a $100,000, you can mortgage $106,000 and have the extra $6000 go towards you closing costs.
It is basically a paper shuffle at closing. Say the total closing costs for the purchaser are $9,000. The bank pays $106,000 to the seller at the closing, and the seller gives the purchaser back $6,000; therefore, the total cost for the buyer at closing is reduced to $3,000.
At the end of the day, who actually pays the mortgage? It's the buyer. So, while they call it a seller’s concession, it is really the buyer who pays the bill.
There are two things I always make my first-time Buffalo buyers aware of: First, the house needs to appraise. I repeat, the house needs to appraise! As your realtor, my job is to know the Buffalo real estate market and interpret it for you. So, when you are buying your first Buffalo home, I will advise you on how much I think the house is worth in the current market. This is a critical part of the process when making an offer. You do not want to over pay, and I don’t want you too either. Bank appraisers will be using the same information I have to determine a value for a property. They are looking for properties similar in size and condition that have sold and closed within the past six months. So, if my opinion is that the $100,000 house is only worth $100,000 in the current market, having the bank appraiser appraise it for 6% more can be difficult.
Second, keep in mind that you are pulling out equity immediately. If for some reason you have to sell the home after only owning it for a short time, you may run the risk of not being able to recoup your total costs. Some areas in Buffalo are seeing a generous appreciation rate, year after year. Some neighborhoods are even up in the 17% range. If that is the case, then the seller’s concessions shouldn't be a problem. If the neighborhood is only appreciating at 1- 2%, you may have a problem when it comes time to sell.
If you are thinking about buying your first home in Buffalo or the surrounding Western New York, there are other closing cost-assistance programs. Many of our local towns and cities have grant programs that are available to you. Contact me today to find out more!
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