Closing Costs On Home Loans Guidelines On Home Purchase
There are two types of costs that are substantially on a home purchase:
- Down Payment Requirements
- Closing Costs
On refinance mortgages, the only costs involved are closing costs. Every real estate transaction has closing costs.
There are always closing costs on home loans. Every mortgage loan, whether they are home purchase, home or refinance loans, there are closing costs. In this article, we will discuss and cover Closing Costs On Home Loans Guidelines On Home Purchase.
How Cover Closing Costs On Home Loans
Closing costs can be paid three different ways on a real estate home purchase transaction:
- Closing Costs can be paid by the borrower
- Closing Costs can be paid by the seller through sellers concessions
- Closing Costs can be paid by the lender through a lender credit in lieu of higher mortgage rates
Closing Costs on a refinance mortgage loan transaction can be paid three different ways
- Closing Costs can be paid by the borrower where the borrower needs to bring cash to closing on their refinance loan
- Closing Costs can be paid by the lender through a lender credit in lieu of a higher mortgage interest rate
- Closing Costs can be rolled into the mortgage loan balance if there is enough equity in the home
What Are Closing Costs On Home Loans?
Closing costs vary from loan program and the county the property is located.
- It is not a set percentage of a home purchase price and/or loan amount like down payment requirements on home purchases
- Most home buyers, especially first time home buyers, do not have to worry about closing costs
- This is because they can get covered with sellers concessions and/or lender credit
- All they have to worry about is the down payment
- Closing Costs are any costs and fees associated with the closing of a home loan
Here Are Examples Of Closing Costs
There are closing costs that exist in one county but not another. Closing Costs will vary from state to state and county to county.
Here are examples of closing costs borrowers can incur on a home closing:
- Title charges
- Recording fees
- Transfer stamps
- Property taxes to pay for the year to date due
- Mortgage interest that is from the closing date to first payment due date of new mortgage
- Mortgage Loan Origination fees
- Attorney Fees
- Appraisal And Inspection Fees
- Survey Fees
- Upfront mortgage insurance
- Upfront private mortgage insurance
- Pre-Paid: Escrows for taxes and insurance
- Discount Points to lower mortgage rates
- The document, Processing, And/Or Underwriting Fees
- One year homeowners insurance fees
FHA Sellers Concession Guidelines Versus Other Loan Programs
Each individual loan program has different closing costs.
- For example, FHA is mortgage expensive due to FHA Upfront mortgage insurance premium of 1.75%
- However, the upfront FHA MIP can be rolled into the loan
- The borrower does not need to worry about bring the cash to close for the FHA MIP
There are many instances where the closing costs on FHA Loans can be more than the 3.5% down payment required on the home purchase.
Here Are Other Loan Programs Allowable Sellers Concession Contribution Allowance
Amount of sellers concessions allowed depends on each individual loan program:
- HUD allows up to 6% Sellers Concessions by sellers to contribute towards buyers closing costs
- VA allows up to 4% Sellers Concessions by sellers to contribute to buyer’s closing costs
- USDA permits up to 6%
- Fannie Mae and Freddie Mac permits up to 3% sellers concessions for primary and second homes
- 2% sellers concessions for investment property loans
Help With Closing Costs On Home Loans
There are two possible solutions for a home buyer with an FHA mortgage to seek help in covering his home purchase closing costs.
- First, borrowers can ask the seller for a seller concession, or seller contribution to assist the buyer with the closing costs of the home purchase
- HUD permits home sellers to contribute up to 6% toward the buyer’s closing costs
- If the closing costs does not cost the whole 6%, the buyer cannot keep the difference and the difference goes back to the seller
- If the seller is not willing to provide a seller’s concession or seller contribution, the borrower can have the lender pay the closing costs in return of taking a higher interest rate
The borrower may pay an extra 0.25% to 0.50% higher rate in lieu of getting a lender credit towards paying for closing costs.