2 Instances When Closing Costs Are Paid by Seller

Having the closing cost paid on a mortgage can save you thousands of dollars in up-front expense to home ownership. This liquidity when you first purchase a home is valuable in paying for moving or furnishing the property. The seller will not often offer to cover closing costs unless there is incentive to do so.

#1 Closing Costs Are Negotiated by Buyer

You may use closing costs as a negotiation tool. Many sellers, surprisingly, would rather pay the closing cost than reduce the price of the home. To you, the expense is the exact same. It can be a source of pride for the seller to gain full price on the home, so you may ask for closing costs if a seller does not budge from a list price.

#2 Seller Offers Closing Cost Incentive

A seller, particularly if a property is builder- or bank-owned, may offer closing costs as incentive in the sale. An individual seller will not be as likely to offer this. However, a seller who owns multiple properties and needs to transfer the asset to cash quickly may promise this up front. Look for this type of offer when you are seeking homes for sale in your area.

Will the seller pay closing costs on a bank-owned property?

The seller on a bank-owned property is the bank itself, so it is not likely to receive a closing cost paid contract. With a bank-owned property, such as a foreclosure property, you will have very little wiggle room with the contract. Often, the bank offers the property at a significantly discounted rate, but it enforces strict buying rules. For example, you may have to purchase the home "as is" or even forego the inspection process. The bank is also not likely to make concessions on price, including the inclusion of closing costs, since the bank is already losing money on the property. 

What are the tax implications if the seller pays the closing costs?

When a buyer's closing costs are paid by a seller, the buyer may be able to deduct the expense. In the eyes of the IRS, a $250,000 home in which the seller pays $5,000 in closing costs and a $250,000 home in which a seller does not pay closing costs are the same thing. If a buyer includes $5,000 closing costs in the price of a sale instead of paying it up front, the sum can be deducted from taxes as part of the mortgage. This deduction includes any points the seller pays toward a mortgage. With a bank-owned property, the bank itself is the seller, and it is unlikely the bank will pay any closing costs, which would eliminate this potential deduction.

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