Seller Subsidy or Seller Paid Closing Costs: Friend or Foe?
There was a Glee Episode on Fox where Sue Sylvester says:
“Like the time I sold my house to a nice young couple and salted the earth in the backyard so that nothing could grow there for 100 years. Know why I did that? Because they tried to get me to pay their closing costs.”
So is it REALLY that offensive to ask for a contribution towards your closing costs from the seller?
First of all, let’s define a seller subsidy: a lump sum from the seller the buyer may use to pay their closing costs. There is no actual cash exchanged or check written…it appears as a simple line-item in your closing cost statement (known as the HUD-1).
Things to consider:
Sellers pay a Grantor’s Tax of $1 per $100 in Arlington County on the GROSS sales price. So they’re paying higher taxes to give you the subsidy.
A buyer’s mortgage/loan amount is based on the GROSS sales price, so your monthly payment may be higher every month, but you’ll have more cash at the time you close.
Buyers pay a Recordation Tax on the GROSS sales price, just like a seller.
So is it offensive?
In 2009, almost 47% of ALL of the sold transactions in Arlington had a seller subsidy of some sort – they can range from a few dollars to 3-4% of the sales price. We factor about 3% of the sales prices for closing costs (in addition to your down payment), that’s how many people achieve a number they ask for as a subsidy. There has been legislation that limits the amount that may be contributed by a seller, but it varies by lender.
My general opinion on the matter is that IF you need the cash – ask for it. Sellers have a number in their head they’re trying to net – if that price is $600,000 and you want $20,000 for closing costs…you may have to give an offer of $620,000 with $20,000 in closing costs, because to the seller this is still a sale of $600,000. It’s a NET value.