doublehh, Home Buyer in Shakopee, MN

Do New Construction Builders typically pay or help with paying closing costs?

Asked by doublehh, Shakopee, MN Sun Apr 7, 2013

I'm going with New Construction and have a meeting next week, but my realtor is out of town until that day and I can't ask them. Basically I want to be prepared before the meeting to not only discuss floor plan but cost too, including closing costs. If I have to pay all closing costs, I might not have enough for 20% down. Will they help pay for this? Thanks!

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Lillytena, Other Pro, South Miami, FL
Sat Aug 13, 2016
Builders have no problem paying closing costs. Heck they will do the max allowed by conventional if you want. I just did this with my buyer on a new construction house. Sometimes they will give beef about appraisal issues (and sometimes it is warrantied) which is the only concern.

THE KICKER is whether they just wrap these into the loan amount or not. If you can negotiate upfront before signing anything it will be possible to hopefully get the builder to cover half of the costs like you said. This is without changing the sales price.

You better do it then though, because once the build starts you lose all leverage. At that time if you ask for $5,000 in closing costs the builder will still do it, but they will just add the $5,000 to purchase price so you essentially are FINANCING the closing costs.

Make sense? Good Luck!
2 votes
Susan Hoffla…, Agent, Shoreview, MN
Mon Apr 8, 2013
Hi, doublehh!
In my experience, builders frequently have a lender that they are partnering with or the lender is even an offshoot of the same company. And, with that type of relationship, frequently, they are willing to offer you an incentive if you use their lender. Those incentives usually come in the form of some type of discount on the price, or some type of free upgraded amenities or that the lender/builder will pay all or a large part of your closing costs for the loan.

If that's the case, this would be structured based on a dollar amount (for example up to $5000) or a fixed percentage of the sale price (for example 3%). That way, if your closing costs exceed that amount, you would have to pay for that overage amount. Make sense?

And, just fyi, if you have your own agent (which I'm guessing you do not or you wouldn't be asking this question here) your agent would be able to advise you as to whether or not the closing cost amounts the lender that is affiliated with the builder are out of line with what they would be if you used an outside lender (i.e. origination fees, title fees, etc.).

Good luck!
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1 vote
doublehh, Home Buyer, Shakopee, MN
Mon Apr 8, 2013
Thanks Lowell, you seem to be very knowledgeable at what you do. I actually have a mortgage banker already who has pre-approved my wife and I for a mortgage at a good interest rate. But I appreciate your help and insight.

I'm looking to buy a new construction house at around $240,000 and should have the $48,000 to pay the 20% down by the end of the construction process at the time of closing. But if I have to pay $5,000 to $6,000 more for closing costs, that might affect my ability to pay all 20% down. I want to avoid paying PMI, and if the builder can pay at lest 1/2 of my closing costs or more, I should be in the clear.

Just wanted to know, how typical do builders pay for closing costs, how much they pay as I have read some builders will pay as much as 3% of home price to closing costs.

If they do not pay closing costs, I may forced to decrease a few upgrades (wood floors, vaulted ceilings, or fireplace etc) in order to put 20% down and have enough for closing costs, I would think they would lose profit if I ended up having to take away some of my upgrades. Thanks!
1 vote
Christopher…, Agent, Bloomington, MN
Mon Apr 8, 2013
Just answered your question on Zillow and you will be just fine as long as the negotiations take place upfront.
0 votes
Lenny Frolov, Agent, Brooklyn Park, MN
Mon Apr 8, 2013
Builders are typically not willing to negotiate a lot because their margins are not as big as they used to be but most are still generally prepared to help pay your closing costs. Make sure that you request that ahead of time of course.
0 votes
Donald James, Agent, Edina, MN
Mon Apr 8, 2013
I am puzzled why your Realtor or one of their associates cannot answer your questions. Call your Realtor's office and speak with the broker. They should have answers for you. You should have your financing planned before the meeting with the builder. You do have several options available to you. If you are doing a construction loan some lenders offer those at 10% down. If you are looking at traditional financing there are conventional loans available with as little as 3% down with prepaid MI.
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