There are actually two sets of closing costs: those related to the purchase, and these are spelled out on page 2 of the CA Residential Purchase agreement, and your costs to obtain your loan.

As for the closing costs for the purchase, the bank is more often paying the closing costs related to the title and escrow fees. Other fees, such as getting a natural hazard disclosure, a pest inspection, county and city transfer taxes, a home warranty...are all negotiable. (although an experienced agent can help you in that some of these fees, it's best to volunteer to pay for in order to be considered in the best light).

The closing costs related to the loan are the costs of the buyer. These include a second title insurance (to insure the lender), escrow fees, loan costs, and prepayment costs for your first year's insurance, some months of property tax, etc, and are laid out clearly in a good faith estimate provided by your lender.

As part of the purchase contract, you may specify all closing costs paid by the seller related to the purchase on page 2. By asking for some credit, such as 3% seller credit for your costs related to the loan can also be specified.

If you had requested this credit towards your loan cost, you would need to provide only 3.5% towards the loan at a minimum. This assumes that the credit you requested covered all other fees.

Paul was correct in specifying that the bank, or another seller, will consider the actual amount that the %credit equates to. They will be considering your offer, more likely than not, in relation to other offers. They will be considering your NET OFFER, after all of the fees that they are being asked to pay.

So in answer to your question, if your purchase offer asked for the credit for loan closing costs, as well as for the seller to pay all closing costs specified on page 2, you need to pay 3.5% of the purchase price in order to obtain an FHA loan.

I see you're in Detroit. In Sacramento, it's still a great market, and a great place to live. Welcome to Sacramento!!!

Hi, Mary,

First, always be sure that the contract specifies any Seller-Paid closing cost assistance in Dollars. Being specific eliminates problems down the road. Terms such as "Seller to pay Buyer's closing costs" are like blank checks. Sellers need to know the amount, up front, in order to calculate the Sellers Net Proceeds.

Second, speak with your lender. There will be some items which are not classified as Closing Costs by FHA. You will be responsible for these. You can (and should) receive a Good-Faith Estimate of Closing Costs in advance. However, the final number will depend upon the terms of the contract--since some costs are fixed, and others are tied to the purchase price.

Your lender can give you advice about how to structure the closing cost portion of the contract. There will be a maximum amount you can receive from the Seller, so get the figure in advance and structure the contract, accordingly.

-Paul-