Closing costs are different from the down payment. Specific programs have a requirement that you put a certain percentage down. Now, these are different. There are standard fees such as appraisal, credit report, processing, and underwriting. Then we have escrow fees. Escrow fees include dock drawing fee, printing fee (to print the documents), notary fee, and a loan tie-in fee if there’s a loan tied in with the transaction. We also have title fees. Title fees include a recording fee to record the loan with the county. So, all these fees together they can add up to quite a sum of money.
Taxes And Insurance
On top of the fees, there are other costs such as taxes and insurance. A reserve of Taxes and insurance are held in an impound account. How many months taxes do you need? Well, that is determined on the month you are currently in. If we’re in April, you will put three months taxes, but if we’re in September, it will be nine months taxes. Homeowners insurance is required up front in the amount of 1 year and three months.
The loan amount determines the fees from title and escrow. If you’re paying points to buy down the rate (see my video on points) or if you have a low FICO score and we have to charge points, then the fees will be higher.
3 Ways To Pay Closing Cost
It is very common for closing costs on a $300,000 loan to be 7K, 8K or even 9K depending on the time of year. There are three ways to pay for closing costs.
1. You pay – You the borrower can pay the closing costs.
2. Ask the seller to pay or split the cost with the seller – In a non-competitive market, a house can sit for months without an offer. In that kind of market asking the seller to pay the closing cost is reasonable. However, sometimes when you ask the seller to pay the closing costs, they may counter with a split cost. The seller may be willing to pay part of the closing costs or even half. Currently, the market is very competitive. There are multiple offers on one house. This would not be the market to ask the seller to pay any closing costs. If you make an offer of $300,000 but ask the seller to pay $8,000 in closing costs, but the seller has another offer for $300,000 without paying closing costs, it is obvious which offer they will choose. The seller wants the most money they can get.
3. Lender credit – We raise the interest rate up and by doing that we get what’s called a lender credit. Example, if I increase the interest rate by .5% on an FHA loan, I can usually get about 1.5% of the loan amount to use towards closing costs. On a $300,000 loan, I can get about $4,500 as a lender credit.
Closing Cost That IS Paid Upfront
There’s a couple of closing costs that are paid upfront. Depending on the type of loan, FHA, VA, or Conventional, will determine the kind and if there is an upfront fee for an appraisal. VA loans require a termite inspection but because you are a vet, you’re not allowed to pay that fee, we do.
So be prepared, you may have to put a little deposit down and pay upfront for an appraisal. The rest we usually work out as we go. Sit down with me I’m going to help you fire your landlord!