As a real estate finance expert with years of experience in the industry, I've seen various scenarios where buyers and sellers negotiate the division of closing costs. Closing costs are the fees and expenses that buyers and sellers incur when they close on a home. They include loan origination fees, title insurance, appraisal fees, and more. Understanding who pays these costs can be crucial in the home buying process.

In the context of FHA and USDA loans, it's important to note that sellers can indeed contribute towards the buyer's closing costs. The contribution limit is up to 6% of the sale price, which can be used towards various expenses such as closing costs, prepaid expenses, and discount points. This is a significant amount and can greatly reduce the out-of-pocket expenses for the buyer, especially for those who are purchasing a home with a loan-to-value ratio above 90%. In such cases, sellers can be asked to pay up to 3% of the purchase price towards the buyer's closing costs.

However, it's not just about the percentage that sellers can contribute. The negotiation process is key. Buyers should approach the negotiation with a clear understanding of the market conditions and the specific terms of the loan they are obtaining. If the market is a seller's market, sellers may be less inclined to offer assistance with closing costs. Conversely, in a buyer's market, sellers may be more willing to contribute to attract buyers.

It's also important to consider the seller's perspective. Sellers may have their own financial considerations and may not be able to afford to contribute to closing costs. Additionally, sellers may prefer to lower the asking price of the home instead of paying the closing costs, as this could make the home more attractive to a broader range of potential buyers.

When asking a seller to pay closing costs, it's essential to do so in a manner that is respectful and considerate of the seller's position. It's a negotiation, and both parties should be willing to compromise to reach a mutually beneficial agreement. Buyers should be prepared to justify their request, perhaps by pointing out that they are offering a fair price for the home or that they have a strong financial profile.

In conclusion, while it is acceptable to ask a seller to contribute to closing costs, especially in the case of FHA and USDA loans, the process should be approached with a clear understanding of market conditions, the specifics of the loan, and the seller's financial situation. It's a negotiation that requires tact, preparation, and a willingness to compromise.

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When it comes to closing costs for FHA and USDA loans, sellers can contribute up to 6% of the sale price toward closing costs, prepaid expenses, discount points and more. ... Buyers with a loan-to-value ratio above 90% can ask a seller to pay 3% of the purchase price.Mar 30, 2015read more >>