We will continue to write more about mortgages in the coming weeks, since mortgage refinances and first time home buyers are where most of our recent questions have come from. Since mortgages rates continue to be at historic lows and first time home buyers that purchase a home by November 30th will receive a $8000 tax credit, these two things alone have stirred the mortgage craze lately.

When you are buying a home, regardless if it’s your first home or your 8th home, you are allowed to have the seller pay for your closing costs.  As a buyer in this type of market, you have a better chance of the seller paying for some, if not all, your closing costs.  All you need to do is  include the total amount of your closings costs into your offer to purchase contract.  If you are not entirely sure how to do this, then let your real estate agent know you are thinking about doing this.

Now, if the seller says they do not want to pay for your closing costs, then all you have to do is show the seller he or she will not loose any of their bottom line if you increase the purchase price enough to cover all of the closing costs.

Example:

Let’s say the you are offering $200,000 for the purchase of this home you want to buy.  Your total closing costs for the mortgage is $1900.  Offer the seller  a purchase price of $201,900.  The seller will than gladly pay for your closing costs, because his bottom line does not change.

Yes, essentially you are paying for the closing costs over the life of the mortgage loan, but the point here is that less money has to come out of your pocket at closing.  Can you think of a few good things to buy for your new home with $1900?

Keep in mind that the lender allows up to 3% of the purchase price for the closing cost credits.  In some cases, the cap is 6%, but it’s normally 3%.

Example:

On a $200,000 purchase price, the maximum closing cost credits would be $6000.  ($200,000 x 0.06 = $6000) 

A way to use these closing cost credits to the fullest extent is to use the extra money to buy down the interest rate.  Depending on home much it costs to buy down the interest rate, you could save $50-$100 more on your mortgage payment!  Not to forget about the amount of interest you will save over the life of the loan when the interst rate is lower.

This kind of thing has been around for awhile, but since we are see more and more people starting to buy homes again, we thought a little refresher would help.