My Buyer Agency
Here's an overall money perspective on the dollars in an offer which might flesh out your understanding a bit.
When thinking about the money involved in a real estate transaction there are at least 2 perspectives ... What does it look like to the Seller (normally what's the net sales price? ... And how much money will the seller receive at settlement?) ... And what does it look like to the Buyer (normally what's the purchase price? ... How much are closing costs? ... How much cash is needed at settlement?)
Seller ... Net Price ... Let's build our discussion around a home where the seller's asking price is $300,000. If you were to offer $300,000, and not ask for closing assistance, the seller's net sales price would be $300,000. If you offered $300,000 and asked the seller to pay $5,000 of your closing costs ... The seller's net price would be $295,000. In other words, when we ask the seller to pay a portion of what would normally be the buyer's closing costs, the seller offsets the sale price (in his mindset) with the closing assistance to be able to understand the net price and compare our offer with other buyer's offers.
Seller ... Cash received at settlement ... Taking the same example of a $300,000 sale price with $5,000 in closing assistance to the buyer (a net of $295,000) the seller pays their own closing costs of say $20,000 from the sale proceeds and would have $275,000 ($300,000-$5,000-$20,000=$275,000) available to pay off any existing seller mortgage. If there were no mortgage, the seller would receive $275,000 from the settlement.
Buyer ... Sale Price ... Using the same example as above, if you offered $300,000 and the seller accepted, $300,000 would be the sale price.
Buyer ... Closing Costs ... For a home in the $300,000 range, I'd expect the closing closing costs (including prepaids and escrows) to be about $7,000. Your loan officer will provide a Good Faith Estimate of Settlement (Closing) costs in response to a loan application for a particular purchase.
Buyer ... Cash needed at settlement. Using the same example of $300,000 with closing costs being $7,000 and no closing assistance from the seller your total costs would be $307,000 ($300,000+$7,000=$307,000). If you had a 80% loan (approximately $240,000) and made an Earnest Money Deposit of say $5,000 with your offer ... The $307,000 would be offset by the loan and your deposit yielding a net of $62,000 ($307,000-$240,000-$5,000=$62,000) in cash that you'd need to bring to closing.
Buyer ... Impact of Seller provided Closing Assistance on Buyer's Cash needed at settlement. The impact is almost dollar for dollar. Using the above examples ... If you offered the seller $5,000 more in selling price and asked for $5,000 in closing assistance, the seller's net would essentially remain the same ($295,000) but your loan would increase by 80% of the $5,000 price increase and your cash required at settlement would go down by about $4,000.
I hope the above discussion helps ... It's also worth remembering that the home needs to appraise for the sales price or we're back to square one. So the value needs to be there to support any requested closing assistance.
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