The question lacks specificity. Sellers are allowed to pay closing costs, prepaid items and points on purchase transactions (except Reverse Mortgages) up to the limit set by Fannie, Freddie, Ginnie, USDA, portfolio or state bond program. A seller would not blindly agree to pay all closing costs as a buyer would buy down the rate as much as possible, by paying points - % of the loan amount. Also, the occupancy of the matters in the limit – for example, investors are often limited to 2%, while FHA can use up to 6% in seller contributions.
Generally, the buyer and seller agree upon a % of sales price or an actual dollar figure. The seller knows what their maximum exposure to costs they must bear and the buyer should work with his or her loan officer to ensure that they can use all of those closing costs. If unused, they are “left on the table” or kept by the seller.
Also, very important to consider is the fact that the house still must appraise for the gross purchase price. This means that any increase in the purchase price to cover closing costs must be supported by recent comparables sales.
It means that you need less money to close since you normally have to pay for closing costs. This assumes that that it falls within the lender’s guidelines. For example: max of 6% allowed (check with lender) and it assumes that the property will appraise. FHA has different guidelines than conventional lenders. The appraisal is important since the lender wants to make sure that there is enough collateral.
This is often done when the buyer does not have substantial down payment/ cash to close. the lender relies on the appraisal since in some instances the seller will raise the selling price and offer similar amount of credit for closing costs.obviously, the value of the property has not risen, thus the concern of the lender. Lenders will accept it when it is common in the area and falls within their guidelines.
The seller paying ALL closing costs means that he is paying for all the non recurring closing costs.
Examples of these costs are things like origination fees, lender fess, title and escrow fees.
It also means that if the maximum allowable seller contributions are not met, they can also pay for items that are called pre-paid items, such as upfront interest, establishing the impound accounts for homeowners insurance and taxes.
The maximum seller allowable contribution varies by program type. In other words FHA loans will allow the seller to contribute up to 6% of the sales price, while conforming loans allow up to 3% of the sales price to be contributed by the seller.