I seem to be running up against some conflicting information. I'm in the US, Boston area.

For the sake of having nice round numbers, let's say I want and can afford a $100,000 home. Would I want a mortgage for $110,000 to cover other costs with purchasing a home? For example, where is the realtor commission considered in the closing process? What about other closing costs? Home inspections?

I wanted to gather my information prior to speaking with a realtor, so forgive the inexperience.

The real estate agent's commission is paid by the seller. Some day you will be the seller, and have to pay it, but for now you don't have to worry about it.

There are other closing costs. It is sometimes possible to roll closing costs into the loan. However, if you are buying a $100,000 house, you are unlikely to get a $110,000 loan. There is a ratio called "Loan to Value" (LTV) and in this case it would be 110%. That wouldn't have flown even in the heyday of crazy loans. Nowadays you have to have a down payment.

Also don't worry too much about about talking to a realtor. I am sure you won't be the first first-time buyer s/he has dealt with. (Though of course, don't take his/her word for anything )

if the costs you are talking about are related to the safety of the home - such as bringing up an item to current code or repairing a major defect (water damage etc), you can roll the extra costs into a mortgage, but only via the FHA. It's called a 403b mortgage for the section of the code that authorizes the program.

I did that so I could buy a house that needed electrical and hvac work to be livable. However, it ONLY covers fairly bad defects, things that make the house unsafe or unlivable, not cosmetic repairs unless they are related to the major repair (ie, if fixing the kitchen wiring requires a complete gut, you can roll in new cabinets, counters etc.)

Yes, completely agree. That was the case with me too.For major issues that are inevitable and cannot be avoided the extra costs come into mortgage.

Your home will probably be one of the biggest purchases in your life. Real estate agents are used to explaining each of these details to home buyers so pelase don't feel embarrassed by your inexperience! Ask all the questions you have and don't stop until you're satisfied that you understand what he/she is saying. And it's okay to interview a few agents until you find one you're comfortable working with.

Your agent may refer you to a loan officer or broker to pre-qualify you for a loan. You will probably need to come up with a down payment and closing costs (different loan products will have different amounts that you'll have to come up with to close). These professionals should explain to you each of your options.

Yup. I agree with stannius.

While it would be very much ideal for you to be able to get a $110,000 loan to take care of the closing costs, it just isn't possible. Here, you have to help yourself and have a downpayment all set up before you go into home buying. That's where budgeting, saving, and scrimping comes in.

However, a piece of info you may be interested in is that you can actually decrease the closing costs you have to pay. Most usually, this can be done by negotiating with the seller of the property you want to buy. A good strategy is to offer something that the seller wants more than the downpayment. (i.e. offer to increase the actual selling price of the home in lieu of charging a downpayment)

Also, don't be wary of approaching a real estate agent for help. Assisting you in home buying is their job after all!

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Adam Randall

http://www.fifteenyearplan.com - My personal finance blog dedicated to helping people take control of their finances.

No, no, no! The seller gets 100% of the selling price minus the commission. It does not matter how much down payment you make unless the seller is financing the mortgage and that is fairly rare these days. Your private financing details are none of the seller's business and not something that should even be disclosed to the seller by anyone. The seller's only interest might be in whether the sale is contingent on sale of another property or on you getting a difficult loan. The lender is the one who determines how much down payment you are required to make. It has nothing to do with the seller.

You also have to be really careful during the negotiation. Many side deals between buyers and sellers are illegal, especially if they ultimately effect the sale price. It's ok to negotiate things like the seller replacing the kitchen cabinets as a condition of sale at $xxx,xxx. But it can get dicey to start making purely financial negotiations or to exchange anything of value outside the purchase agreement. For example, having your mom pay the seller a $10000 downpayment directly then writing the sale at $90000 to save costs or to match a low appraisal can land you in federal prison for 25 years or so! It is best to listen to your real estate agent or attorney and not try to play games if you don't understand the process!

As a seller, I am often curious about the buyers' finances. In fact, if a seller can prove they are a smaller risk of delaying or having the deal fall through, I'm more likely to accept a lower sale price (usually a couple of grand).

This usually manifests itself through the amount of money they disclose they will bring to closing and the lack of asking for funds to close. My homes lately have been in the bracket where people no longer ask for "closing costs" to be part of the deal. And it is a welcome change.

That's what I was referring to. There is nothing wrong with negotiating to accept a lower price from a well-qualified buyer because you know the deal will reliably close. But you don't get into the middle of their loan by negotiating the down payment unless you are the lender.

I have heard of deals in the past where a buyer and seller agreed that the buyer would pay, say $20000 extra for the house and the seller would give the buyer $20000 at closing. That kind of deal sounds not too different from what was suggested but might be illegal mortgage fraud.

We bought a house that had future rental contracts we had to honor that were prepaid. That meant the seller paid us the prepaid rents in cash at closing. That payment was entirely legal but had to be very carefully documented and was scrutinized closely by the lender as well as the escrow company.