Can You Finance a Real Estate Agent's Commission?
Can You Finance a Real Estate Agent's Commission?
What Every First-Time Homebuyer Needs to Know
When you're buying a home, every dollar counts. And if you're a first-time homebuyer, you're likely navigating a sea of confusing information. One question that pops up often is whether you can roll a real estate agent's commission into your mortgage. The answer is straightforward: no, you can't. Despite lots of misinformation floating around, it's critical to understand the facts so you can budget and plan effectively.
Below, we break it all down - how commissions work, common myths, and what you can do if you're short on funds for these costs.
What Does a Real Estate Agent's Commission Cover?
A real estate agent's commission is essentially their fee for helping facilitate the sale or purchase of a home. Typically, this commission is a percentage of the home's sale price—often around 2-3%, though this can vary and we are seeing flat rate models as well as hourly models come into play.
In the past when you were buying a home, these commissions were frequently paid by the seller as part of the overall transaction. Since the NAR lawsuit however, this is not always the case. In some situations, the buyer may be responsible for their agent's commission, and this is where things can get tricky—especially if you were led to believe you could roll it into your loan.
Can You Roll the Agent's Commission Into the Loan?
No, you cannot finance your real estate agent's commission through your mortgage. This is a major misunderstanding among some buyers, and even a few agents. Let’s clarify:
- If you're purchasing a home for $500,000 and putting down 3%, you cannot increase your loan amount to include the agent's commission.
- There's no loan program—whether it's conventional, FHA, or VA—that lets you finance commissions directly.
The Myth of "Financed Commissions"
This confusion often comes from poorly worded ads or misleading information. Some lenders advertise that you can "finance closing costs," but this doesn’t mean you're tacking extra costs directly onto your loan. Instead, you're reducing your down payment and using that leftover cash for your expenses.
For example, let’s say:
- You're putting down 20%, and you want to free up funds for a 3% commission.
- Instead of putting 20% down, you could adjust and put 17% down. The cash you saved would then go toward the commission.
It’s not about adding the commission to the loan—it’s simply shifting your funds around.
Why This Misconception Exists
Misinformation thrives because many advertisements or lenders oversimplify the details. Some lenders or agents may not fully understand the guidelines themselves. What you’re left with is a game of telephone, where bad advice gets passed down the line.
A real-world example: In Chicago, some agents assure buyers that "you can finance the commission." This simply isn’t true. Buyers end up blindsided when they realize they’ll need cash on hand instead.
Real Estate Commissions Are Like Closing Costs
Think of a real estate agent's commission as just another closing cost. Other closing costs may include:
- Title fees
- Escrow or attorney fees
- Homeowner’s insurance
- Lender fees
Like these, real estate commissions can’t be rolled into your loan. If you can’t pay them outright, it’s time to consider alternative strategies.
How to Handle Commissions if You’re on a Tight Budget
If you’re short on funds for closing costs or commissions, don’t panic. Here are practical options:
1. Negotiate for the Seller to Cover Costs
This is a common tactic. Buyers can request that sellers contribute toward closing costs and commissions as part of the deal. It is just another term of the purchase contract that needs to be negotiated. This is what we are seeing the most of right now.
2. Work With a Realistic Real Estate Agent
Find an agent who understands your financial situation and is willing to negotiate on your behalf.
Not every agent will take the time to craft offers that address both commission and closing cost concerns.
3. Adjust Your Down Payment
As mentioned earlier, you can lower your down payment slightly to free up cash for these costs.
This option works best if you’re planning to put down a significant percentage, like 20%-40%.
4. Delay Buying Until You’re Ready
If none of the above are feasible, it may be worth holding off on your purchase. Saving more upfront funds can save you stress later on.
Why Knowing the Truth Matters
Being told inaccurate information—whether intentionally or out of ignorance—can lead to major financial headaches.
Here's why this matters:
1. Inaccurate Information Can Mislead You
Some agents or lenders may tell you “don’t worry about the commission, you can finance it,” just to close the deal. This can lead buyers to make financial commitments they can’t afford.
2. Mistakes Raise Red Flags
If someone doesn’t understand basic guidelines like this, what other critical details might they get wrong?
Bottom Line on Financing Commissions
No matter what you hear, there are zero loan programs that let you directly finance your agent’s commission. If someone tells you otherwise, don’t just take their word for it. Ask questions, demand clarity, and verify the facts.
Buying your first home is a huge milestone. But to make confident decisions, you need accurate information and honest professionals guiding you.
Have questions? Want to ensure your mortgage process is stress-free? Contact me anytime - I’d love to help.
Jennifer Beeston
SVP Mortgage Lending @ Guaranteed Rate
Phone: 786-933-2077
Apply For Mortgage: www.zerostressmortgage.com
Resources To Learn More:
Youtube Thousands of Mortgage and Real Estate videos: www.youtube.com/jenniferbeeston
Free VA Loan Course: www.nostressva.com
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