They say you make your money in real estate when you buy. Nothing could be more true.

Making money in real estate isn’t only measured in how much money you make, it’s also measured in how much money you keep.

When buying my last bank-owned property, I managed to get all my closing costs covered plus 2 points paid toward my loan; that came out to just under $9,000 I kept in my pocket!

For more information on what closing costs are, click here.

In today’s market, getting your buyer’s closing costs paid for you shouldn’t be too much of a problem unless you’re buying a short sale. Don’t worry though, I’ll show you how to deal with those short sale closing costs, too.

Methods Of Covering Your Closing Costs

*Note: Buyer’s closing costs typically hover around 3% of the total purchase price of the property. Furthermore, many lenders won’t let the seller contribute more than 3% for you - but that’s not set in stone.

Method 1 - Ask your Realtor to contribute

Where I live, finding a Realtor is about as easy as making my cup of coffee. Everywhere one turns they see an ad placed by a Realtor advertising for their business. With such competition for your business, it’s pretty easy to negotiate Realtor terms (you did read my wife’s article on negotiating, didn’t you).

Average home buyers are unaware that you can negotiate with Realtors. ZipRealty offers 20% of their commission back to the buyer just for using them. Don’t expect this money to be cash in your pocket, however. Realtors have certain rules they must abide by and handing you cash is one of those “no no’s.” Instead, that 20% can be paid toward your closing costs.

Method 2 - Get the seller to contribute

Sellers want to sell their house. In today’s buyer’s market, I personally would never submit an offer that didn’t include the seller paying at least half my closing costs - but it’s best to always first ask for the seller to pay them all for you. *You should always ask for more than you expect so as to leave room for negotiations, but more on offers in another post.

2a: The easiest way to try and get the seller to pay your closing costs is to simply ask them. This method, however, is a shot in the dark as you don’t really know what their needs and wants are.

2b: Another method is to offer the seller an investment, like a US Treasury Bond or Zero Bond. Typically you can buy these bonds at half the price of it’s matured face value (in other words, you buy the bond today for $5,000 and in 10 years or so it matures to $10,000). Therefore, if your closing costs come out to $10,000, you actually only pay $5,000.

2c: Are you a dentist, contractor, web designer?

By talking with the seller you might find the seller needs something you can do for them. For example, let’s say you’re a dentist and after chatting with the seller you find out one of the things she wants to do after the sell of her house is pay for her daughter’s braces (*wink - do you see where I’m going with this?).

They pay your closing costs, the seller’s daughter gets braces. Simple, easy, and best of all, everyone wins!

2d: When submitting an offer, you should try including more than you expect to get.

If your offer is refused, try conceding and giving in to letting the seller keep a few things you requested come with the house in exchange for them paying some of your closing costs. For an investor, money-wise the deal might work the same, but for typical people selling their home, the way the deal is structured will simply *feel* better.

2e: After you’ve submitted your first offer and if the seller hasn’t agreed to pay any of your closing costs, do a second walk through of the house with a black marker and some paper during your due diligence period.

Write down everything you see either wrong or needs to be repaired in the house (paint, landscaping, chipped wood, garage door dent, etc). Be sure you write big enough with the marker so the seller can see what you’re writing - you want them to know their house isn’t as perfect as they think.

These are now negotiating chips. Let them know you didn’t see these things at first and were not factored into your last offer and you need the seller to either fix these things before you buy or contribute to your closing costs at closing (at closing is when they’ll have the money).

2f: Ask the seller to finance your closing costs.

They pay your closing costs up front and you sign a promissory note and agree to pay the seller payments. Try to keep the agreed upon interest rate no higher than 5%.

Here’s a little tip - if the note is a 5 year note, try contacting the seller in a couple years and offering them a discounted payoff for payment in full today. Or maybe you have something you can offer them in trade. If it works, you save money.

2g: If all else fails, you could ask the seller to raise the price of the house just enough to cover your closing costs. So if your closing costs are $5,000, the seller would raise the price of the house in that amount and then contribute that extra $5,000 to pay your closing costs.

This is my least favorite method as you really aren’t saving any money, you’re actually adding to the cost. However, it does get you in the house.

Method 3 - Find a house that can pay its own closing costs

This is basically the same method used in Method 1 of part 2 in this series (covering your down payment).

If the house comes with furnishing, for example, find a buyer for these items and agree to sell them at time of closing. What happens then is at closing you buy the house and the furnishings become yours. You then immediately sell those items to a buyer who’s check is used to pay for your closing costs.

Covering Closing Costs In A Short Sale

A short sale is when a bank agrees to sell a house for a lesser value than what the homeowner owes on it. As discussed in this article, banks selling properties under a short sale typically won’t contribute to buyer’s closing costs.

By now I hope you understand that as a buyer, you’re not limited to simply asking the seller to pay for your closing costs to get those costs covered in part or whole.

If I had no cash on hand and were looking at short sales, the first thing I’d do is negotiate with my Realtor like mentioned in Method 1 and go from there. Remember, it’s about keeping your eyes open to possibilities and keeping an open line of communication with your bank.

Summary On Down Payments and Closing Costs

I could go on and on but by now, if you’ve read Part 2 of this series along with this article, you should see an underlying thought process going on in my head.

You have to look and problem solve when it comes to real estate.

Every seller has their own reasons for selling a property. Smart buyers discover these reasons and try and figure a way to solve these problems in a way that’s favorable to both parties.

It makes me wonder sometimes why there are so many corrupt individuals out there looking to cheat the system to make a profit in real estate when perfectly legal and ethical techniques exist to allow for a profit.

Do you have any experience in real estate?

Have you found ways to save a little here or there you’d like to share?

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