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Are Seller Paid Closing Costs Actually A Thing? - YouTube
Channel: Win The House You Love
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Hey, Kyle here with
winthehouseyoulove.com.
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Today, we're talking about are seller
paid closing costs a real thing?
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A lot of people get this mixed up.
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They just think the seller's going
to cover closing costs for them, but
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it doesn't work exactly like that.
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So three things we're going to learn here:
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Number one, if the seller can cover all of
your closing costs, number two, the trick
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to getting the seller to actually accept
paying for your closing costs, because it
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takes a little bit of negotiation there.
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And then finally, an easy to read chart
that's going to show you exactly what
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you can ask for in closing cost credit.
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So let's just jump into this.
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So first let's talk about the
seller and the drama of it all.
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So often what people say to me when I
asked them about, you know, what are
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you going to do as far as closing costs?
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Because you have your down
payment and closing costs that
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create your total cash to close.
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And so they say, well, the
seller is going to cover that.
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Well, the problem is how much, how
much is the seller going to cover?
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Because in a contract you can't
just write, the seller is going
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to cover all closing costs.
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It doesn't work exactly like that.
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I'll show you how it does
work here at the end.
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So what happens is that money comes
directly out of the seller's pocket.
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So we have to keep this in mind.
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So for instance, if you're purchasing,
let's saw a $300,000 house and you
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ask the seller for $5,000 in credit
towards your closing costs the
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seller is actually only going to be
receiving a net offer of $295,000.
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So when we ask for closing costs,
we ask for a specific dollar amount
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or a specific percentage, and that
money comes directly from the money
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that the seller would be getting.
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So even though you might be offering
$300,000, the seller is actually
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getting a net offer for their
home of $295,000 after they give a
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credit towards your closing costs.
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Okay.
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So.
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Obviously, this is not super attractive.
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If you come to a seller and you say,
Hey, I want I'll offer your 300,000
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for your house, but I want you to give
me $5,000 back they're going to think,
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we'll, that's $5,000 that we wanted
that they would have had in extra
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money if they go with an offer with
somebody not accepting closing costs.
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So your offer becomes a lot less
attractive when you ask for closing costs.
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So you need to be cautious of this,
especially in a really competitive market.
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So one trick that you can do, to get
the seller, to actually view this
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net number a little bit differently
is actually to kind of wrap closing
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costs into your purchase price.
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So you used to be able to, before
the housing crash actually wrap
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closing costs in your mortgage.
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So, you used to, you know, if you
had a $300,000 house, you could get
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a loan for like $310,000 and have
$10,000 to go towards closing costs.
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And sometimes you could use it
for like, repairs and furniture.
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And it was that's what led to the
housing crash that doesn't exist anymore.
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So you can't wrap it into the loan, but
you can wrap it into the purchase price.
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So I'll show you how this works.
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So what you can do, let's say
this $300,000 example, the sellers
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listing a home for $300,000.
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So what you could do is offer $305,000
and ask for $5,000 in closing cost credit.
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So what does that do?
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That makes the seller oops so we offer
$305,000 and ask for $5,000 back.
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And what does that do?
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That gives the seller a net of $300,000.
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That's exactly the
amount that they wanted.
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So you ask a little bit above
to wrap those closing costs into
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the purchase price so then you
can finance them with the loan.
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So what this does is it's
easier for the seller.
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But we have to be very careful because
we need to make sure it appraises.
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Right?
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So for instance, let's say a, it was
a $300,000 house, but let's say we
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ask for $10,000 in closing costs.
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Well, if we offer $310,000, the home
now has to appraise for $310,000.
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If it doesn't, then we won't be
able to take all those closing costs
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and put it into the purchase price.
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So something you need
to be very careful of.
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And if you're going to do the strategy,
talk with your realtor about doing
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this and make sure that there's a
high level of confidence that the home
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is going to appraise for that higher
amount, because if it doesn't, then we
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need to talk about how do we actually
handle this appraisal coming in lower.
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Alright, so now a quick
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So let's go ahead and jump into
how to make this offer attractive.
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Okay.
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Again, because we're talking
about how much does the seller
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actually want to get out of this?
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We want closing costs and the
seller wants to walk away with the
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money that they were expecting.
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So we have to be able to create the best
of both worlds with those two scenarios.
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So, first we need to look
at how attractive is our
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offer to begin with, right?
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If we're asking for closing costs,
We need to make sure that we're
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either evening out the net that the
seller is going to get, or the rest
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of our offer needs to be attractive.
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So maybe we need to have an earlier
closing date, or we need to ask for
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less contingencies in the contract.
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There are ways that we can set up our
offer to be more attractive to the seller
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even if we're asking for closing costs.
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Because if the contract that the
seller gets is all leaning towards
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being more favorable to us, the seller
has a less likely of a chance to
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actually want to go with our offer.
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Alright.
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So ask your real estate agent, how
can make this offer more attractive if
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we're going to ask for closing costs?
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Also, this is huge.
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This is going to depend a
ton on your local market.
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So if you're in really high cost
areas, if you're in these crazy
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areas of California or, you know,
high, competition areas in Florida or
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Tennessee or, or wherever you're at,
just know that asking for closing costs
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might not be something that's very
customary in that specific local market.
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Most of the time high competition
markets don't have a lot
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of closing costs going on.
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Because the markets are so
competitive people with more
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favorable offers are going to win
over people asking for closing costs.
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However, if you're in more of an
average market somewhere, for instance,
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like where I'm at Dayton, Ohio,
then closing costs are super common.
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I would say probably 70% to 80% of
the loans that we do have some sort of
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closing costs concession from the seller.
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It's just incredibly common in
this area, but it might not be
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in your specific local market.
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Now this is also going to depend on
the market energy that's going on.
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So if it's a buyer's market
or a seller's market.
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So in a sellers market, the sellers have
the control, meaning that it's going
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to be difficult to get as much closing
costs as you want, because there's a
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lot of buyers bidding on the same home.
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One home might have several offers.
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So asking for closing costs makes
your offer kind of stack a little
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bit lower amongst other offers.
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Now on the reverse, if it's a buyer's
market, then the buyers have the control.
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And you might be able to ask for more
closing cost credit in a buyer's market.
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So then also, you know, just
like the Beyonce song, if
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you'd like it put a ring on it.
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Okay.
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A lot of times people want to
fight over these small amounts.
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And I see this happen all the time, where,
where somebody writes an offer and then
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they get a counter offer back from a
seller and they don't accept it because
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there's a difference of $1,000 or $3,000.
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And I get it, you know, money is money.
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Money is expensive,
which is a stupid phrase.
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But if there's a home that you love,
put the action behind it to show
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that you actually love it because
a home will go away if you're not
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willing to put the offer up for it.
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Okay.
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I see people lose out on homes,
literally over a thousand dollars.
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At that point, we're just playing with
egos and we probably need to take a,
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take a breath and say, you know what?
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We actually really want this home.
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We're willing to pay money for it.
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So if that's you just, just recognize it.
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If it's a home you want.
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Be willing to pay for it.
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And if you're not willing to pay for
it, then don't put as much stake in
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it that home, emotionally upfront.
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Okay.
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Now, closing costs are negotiated as
a percentage of the purchase price.
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Going back to the first bullet point,
you can't just write in the contract
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"seller pays all closing costs".
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It doesn't work like that because
if you're using financing, there's
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a maximum amount that the seller
can actually pay and you have
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to fit within those guidelines.
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You can't just receive however much
money you want from the seller.
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So we're going to cover that here in
just a second, but first let's slow down
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and let's have a CalmMoment, just like
you want to slow down in the mortgage
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process and in the home buying process,
we're going to slow down in this video.
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Okay.
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So, if you're bidding on a home,
especially in a market right now where
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nationally, it seems like every, every
market seems to be in a seller's market.
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It can be really frustrating
if you need closing costs help.
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If you need closing cost help from
the seller, it's hard because you're
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putting in offers and you're most likely
are getting beat out by other people
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who aren't asking for closing costs.
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So, first, I just want you to
recognize that if something doesn't
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work out right now, Odds are it's
going to work out in the future.
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Often what I see happen is buyers will
put in offers on homes and they get
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super disappointed, but then one finally
comes along that they get an accepted
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offer on and they're able to close it.
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And that home was so much better than the
initial homes that they were offering on.
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There's just this interesting thing that
seems to work in this world where, when
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we get told no, when things don't work
our way, it usually is for the best.
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And it's difficult to accept that,
but sometimes we just have to take a
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moment and say, you know what we're
accepting the circumstances happening
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or accepting that this, this option,
this opportunity isn't working out.
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And we're okay with that.
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We're going to move forward and
see what plan we can create, moving
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forward without that specific one.
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So just know if, what if the home you're
looking at right now, isn't working out.
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If someone else puts in an offer
on it or you keep getting beat
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out, I promise you there's going
to be a better one coming ahead.
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You just need to wait for the timing to
be right for that perfect home to show up.
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Okay.
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So let's talk about the max seller
credits you can get with each loan type.
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So conventional loans are
a little bit different.
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They have a couple extra guidelines here.
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So the max seller credits
on a conventional loan.
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If you're putting less than 10%
down, the max you can ask for is 3%.
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So for instance, on a $200,000
house, the max seller credits
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you can ask for is $6,000.
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Okay.
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If you're putting 10% to 15% down, you
can ask for up to 6% of the purchase
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price towards your closing costs.
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If you're putting 25% or more
down, then you can ask for up to
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9% towards your closing costs.
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On FHA loans, you can ask for
up to 6% of the purchase price.
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On VA, it's up to 4% and
on USDA, it's up to 6%.
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And then if you're looking at a
jumbo loan, jumbo loans are for
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people who are purchasing above
the conventional loan limit.
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And which right now is hovering
around the mid $400,000 range.
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If you're using a jumbo loan, each lender
has specific guidelines for jumbo loans
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and just ask your lender if you're using
one of those loans, how much you can ask
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for in seller credits, normally it hovers
around the lower side, like 2% to 3%.
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Again, it depends lender by lender.
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All right.
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So, if you want to learn more about
closing costs, I have a video that
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is the complete guide to home buying
closing costs right over here.
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I'm going to walk through real life
loan estimates, like loan estimates
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I've given to clients that have
closed on those specific homes and
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show you real life numbers and go
through those documents with you.
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Thanks so much for watching.
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