Who Pays Closing Costs in a Short Sale?

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Closing costs are one of the unexpected parts of home buying that many buyers (and sellers) may not be aware of until they come up. These extra fees pertain to nearly all homes, and often make buying a home that much more difficult. As a result, there are numerous ways that people have created to move around the responsibility of paying these costs so they do not fall solely on one person. In short sales, the transaction becomes even more complicated, and closing costs may be different on a case by case basic.

Short Sale Definition

A short sale is a type home transaction that is forced by the lender if the owner cannot pay the mortgage. Rather than foreclose, which can be a lengthy and expensive process for the lender, the homeowner agrees to sell the house below the mortgage process and the difference is either forgiven or deal with at a later time. The buyer benefits from a lower property price, but the transaction must always be approved by the lender.

Closing Cost Definition

Closing costs are costs paid the lender and title company for processing loans and switching title deeds to the new owner. These costs are typically several thousand dollars, but can be more or less depending on how much work is done and the type of loan involved in the process. There are usually closing costs for both the buyer and the seller.

Seller Costs

Seller closing costs are almost always paid by the lender who still holds the original mortgage for the company. Remember, this lender has made a deal with the seller to accept the money from the short sale instead of foreclosing, so it is in the lender's interest to make sure that the house is sold quickly and that the seller can afford to do it. Sellers rarely have to pay more than a small percentage of their closing costs.

Buyer Costs

Buyer closing costs are often higher than seller closing costs and may be paid either by the buyer themselves, out of pocket, or by the seller's lender (not the buyer's lender). Many transactions have a clause that requires the seller to use 3 percent of the sales price to pay off the closing costs (anything above that the buyer must pay).

Considerations

When buyers add this 3 percent clause into their offer, the lenders see it as a loss to the money they will receive from the sale. This typically costs the lender several thousand dollars they could have otherwise made, and depending on the price, the lender may immediately refuse this type of offer.

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