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Closing costs include title and loan origination fees and other expenses. They often add up to several thousand dollars. For buyers who have struggled to put together enough money for a down payment, coming up with funds to cover closing costs can be an additional hurdle. Sometimes a buyer who is interested in a property, but who is strapped for cash, asks the seller to pay the closing costs. 

What Does It Mean When the Seller Pays Closing Costs?
In that situation, the seller doesn’t actually pay the closing costs out of pocket. The seller raises the sale price and the closing costs are rolled into the buyer’s mortgage amount instead of being paid up front. That limits the buyer’s out-of-pocket expenses.

When Might That Not be an Option?
It’s not always possible for the seller to pay the closing costs. Mortgage lenders limit the amount of closing costs a seller can cover based on the loan program and the buyer’s loan-to-value ratio.

You might run into a problem if your house won’t appraise for a higher sale price. A lender will not agree to a mortgage if the house’s sale price is not in line with its value in current market conditions.

Is Paying the Closing Costs a Good Idea?
When a house is sold, the seller pays a commission to both the seller’s and buyer’s real estate agents. The amount of each commission is a percentage of the sale price. If you agree to raise the sale price to include closing costs, you will have to pay larger agent commissions. 

Depending on where you live, there can be several expenses to cover when you sell your home, such as title insurance, government services fees and escrow fees. If you agree to pay the buyer’s closing costs, and therefore pay higher fees to the real estate agents, the total cost can be too much of a stretch for you, especially if you are buying a new house and have your own closing costs and other associated expenses to cover.

If a potential buyer asks you to pay the closing costs and you refuse, the buyer might have no choice but to walk away from the deal. If you have not received any other offers, you will find yourself back at square one. If you need to move soon or if you have already moved and you are struggling to cover two mortgages, it’s better to get the old house off your hands.

Talk to Your Agent
Paying the buyer’s closing costs can cost you money that you weren’t planning to spend, but it will be worth it if you’re eager to sell your house and can afford the additional expense. If a buyer asks you to pay the closing costs, discuss the pros and cons with your real estate agent.