“In Canada is it acceptable to ask the seller to pay buyer’s closing costs? Do banks allow this? I can see a scenario where I put in an offer at an amount above the seller’s asking price equal to my expected closing costs with the condition the seller pays my closing costs. Not sure if banks would grant a mortgage though under these conditions.
Jason – Ottawa, Ontario
Yes, most banks will accept a real estate contract that states the seller will pay the buyer’s closing costs, up to a maximum of approximately 6%. However, some may reduce the sale price (and as a result, mortgage loan amount) by the amount the seller is paying to the buyer. This ensures they are loaning what the ‘actual’ sale price is, not just what the sales contract states.
On the other hand, some people believe a seller can do whatever they want with the sales proceeds. This includes paying your closing costs or giving a ‘cash back’ at closing for repairs. This can be done with a side agreement or an addendum to the real estate contract. Most times a bank will simply ask for the initial real estate contract, and if changes are made at a later stage, they don’t care and never ask for them. So it is possible to do what you are asking.
Remember… when financing a property like this, there is little room for error in your financial analysis of the property. I don’t recommend this type of arrangement for your first deal, as there is no room for mistakes. Your best bet is to finance a property with a small down payment (as little as 5-10% is available). Most people learn better when there’s a bit of money on the line, so just use a small amount of capital and consider it your ‘education fund’. Once you have some experience, you can look into creative ways to finance your deals and reduce the down payment required.