# Use it or Lose it! – Make sure you use all of your seller-paid closing costs

When you buy a home, one of the items you can negotiate with the seller is that you ask the seller to pay for all or a portion of your closing costs. Closing costs are the fees that you pay to buy a home, such as origination fees for your loan, recording fees or appraisal fees. Closing costs are NOT part of the purchase price and are separate from your down payment. Let’s take a look at a fictitious example.

In this example, the buyer is purchasing a home for \$300,000. They plan to make a down payment of 20% (\$60,000) and will take out a loan for 80% of the purchase price (\$240,000). The buyer is also required to pay their closing costs, which in this simplified example come to \$4,250. The total amount of cash that this buyer would provide to close the transaction is \$64,250.

 Purchase Price \$300,000 Down payment (20%) \$60,000 Loan amount (80%) \$240,000 Loan origination fee (1%) \$2,400 Hazard insurance \$600 Settlement fee \$500 Title insurance \$600 Recording fee \$150 TOTAL CLOSING COSTS \$4,250

Now, let’s say that as part of our negotiations to purchase the property, the buyer requested that the seller pay for their closing costs. During the negotiation, buyers have to work off of estimated closing costs, so it is difficult to pin down the exact total. Let’s look at three examples of seller-paid closing costs for this transaction.

• Seller-paid closing costs = \$2,000
• Buyer pays their remaining closing costs of \$2,250, plus their down payment of \$60,000.
• Seller-paid closing costs = \$4,250
• Buyer pays zero closing costs and only has to bring \$60,000 for their down payment.
• Seller-paid closing costs = \$5,000
• Buyer pays zero closing costs and still has to bring \$60,000 for their down payment. Lenders will NOT allow closing cost contributions to be contributed towards a buyer’s down payment.
• Seller only pays \$4,250 towards closing costs, since there are no more closing costs to pay. Although the seller conceded an additional \$750, they get to retain that amount.