Requests for buyer's closing costs can be made to the seller in the buyer's offer to purchase the property. Depending on the seller (HUD, Bank, or private owner) closing costs may or may not be negotiable. HUD may pay certain closing costs only if the amount requested is delineated on line 5 of the HUD sales contract.

Upon closing a HUD-owned single-family property, HUD will allow to be deducted from its proceeds, purchaser financing and closing costs considered to be reasonable and customary in the jurisdiction where the property is located. The sales contract shall be used to reflect the total dollar amount HUD is expected to pay towards a purchaser’s financing and closing costs.

However, in no event may the costs exceed three percent (3%) of the property’s gross purchase price. If the total closing costs reflected on the HUD 1 settlement statement are less than the amount indicated on the sales contract, HUD will reimburse only the actual costs charged and will not credit the purchaser with any difference either in cash or through a reduced purchase price.

Within the three percent (3%) allowance, HUD will reimburse loan origination fees up to one percent of the mortgage. However, on an FHA 203(k) rehabilitation mortgage loan, HUD will reimburse one and a half percent (1.5%) of the mortgage. HUD will not adjust the list price, offer, or amount on line 5 of the sales contract for requested closing costs after a contract is executed.

Total closing costs typically run between 4 and 5 percent of your loan amount if financing, and often less than 1 percent if purchasing with cash. Thus, it should be apparent that most of the costs are made up of lender fees and escrow funds. Also, property taxes will be prorated so that you will receive a credit for the amount of taxes for the period from January 1 to the closing date. This is because property taxes are paid for the entire year by the current owner when they are due. Therefore, the seller pays you for the period they owned the property, and you will pay for the entire year. That way, you actually only pay for the period you owned the property. Your good faith estimate from your lender and a copy of your HUD-1 settlement statement provide you with the details of costs associated with the purchase of the property.

If you wish to contest your property tax bill to have your taxes adjusted because you disagree with the county tax appraisal district's assessed market value of the property, you will use your HUD-1 statement to provide evidence of what you paid for the property, which is the actual market value of the property. So do not lose this important document.