Closing Costs On Home Purchase And Paying With Sellers Concessions
This Article Is About Closing Costs On Home Purchase And Paying With Sellers Concessions
Homebuyers will require two types of funding requirement on a home purchase:
- down payment
- closing costs on home purchase
The down payment requirement is a fixed percentage of the home purchase price.
- All real estate transactions, whether it is a home purchase or a refinance, has closing costs
- Closing costs are any costs and/or fees incurred with the real estate transaction
- There is no set amount on how much closing costs is
- Closing costs vary on the county and state the property is located, the type of property, the loan amount, the type of home mortgage program, the loan size, the borrowers credit profile, and other factors
- No two closing costs are the same
- The good news is that most homebuyers do not have to pay closing costs out of their pocket
- Closing costs at Gustan Cho Associates is normally paid for with by the seller with a sellers concession and/or a lender credit
- In the event homebuyers are short of closing costs, the lender can offer a lender credit so they do not have to come up with money out of pocket in lieu of a higher mortgage rate
Down Payment Requirements On Home Purchases
Each home mortgage program has a minimum down payment requirement on a home purchase. With the exception of VA loans and USDA loans, down payments on home purchase are required on FHA, USDA. Conventional, Jumbo, and portfolio loans.
All home purchase transactions require closing costs on home purchase.
Closing costs are any fees and costs that are associated with the origination of the mortgage loan and costs associated with the home purchase. Any third party charges including pre-paid and discount points are considered closing costs in a real estate transaction.
What Are Closing Costs With Mortgage Transactions
Closing costs on home purchase includes third party costs such as the following:
- attorneys fees
- appraisal fees
- home inspection fees
- origination fees
- credit report fees
- processing and/or underwriting fees charged by lenders
- discount points
- title charges
- city, county, state real estate stamps and/or transfer fees if applicable
- pre-paid (escrow accounts)
Any other third-party fees and/or charges that are associated with the closing of a home purchase.
Examples Of Typical Closing Costs On Purchase And Refinance Home Mortgages
Examples Of Types Of Closing Costs
Down payment requirements is a fixed percentage required based on the home purchase price. The down payment on a home purchase depends on the mortgage loan program.
Let’s take how the down payment requirement on a home purchase works:
- For example, HUD, the parent of FHA, requires a minimum a 3.5% down payment on a home purchase FHA loan
- Conventional loan programs require a 3% to 5% minimum down payment on a home purchase
- 3% down payment is required on conventional loans but you need to be a first time homebuyer
- Fannie Mae and Freddie Mac define first time homebuyers for those who have not had ownership in a home in the past three years
- Non first time homebuyers need 5% down payment on conventional loans
- Jumbo mortgage lenders normally require 20% to 30% down payment on a home purchase
- Jumbo loans are home loans that is larger than the maximum conforming loan limit of $510,400
- VA loans and USDA loans are government-backed loans and do not require any down payments
- Lenders offer 100% down payment on VA and USDA loans due to the government guarantee
- Gustan Cho Associates offers non-QM loans where the down payment requirements vary between 10% to 30%
- However, closing costs are not a fixed rate
- Closing costs vary on every real estate transaction and is different in every state, county, city
Normally, closing costs on home purchase average 2% to 3% of the home purchase price.
Examples Of Closing Costs
Here are some examples of the types of closing costs a home buyer can be charged on a real estate purchase transaction by lenders and third-party vendors:
- Costs and/or fee to run your credit report
- Loan origination fees
- Discount points
- Processing fees Underwriting fees
- Home appraisal fees
- Home inspection fees
- Title search fees
- Depending on the city, municipality, state, there may be government junk fees and/or charges
- Recording fees
- Title insurance costs and/or fee
Appraisal fees is normally paid outside closing.
Closing Costs Depends On Various Factors
Other closing costs can include the following:
- termite inspection
- well inspection
- other specialty inspection
- Attorney fees
- City and state transfer tax fees, intangible tax fees, and recording fees
The bottom line is any fees, costs, charges that is part of the real estate transaction is considered closing costs.
How Much Are Closing Costs?
As mentioned earlier, closing costs can vary depending on several factors including where the property is located:
Normally, closing costs are between 2% to 6% or more of the purchase price of the home:
- Closing costs can sometimes much more depending on the city, county, state the property is as well as the type of property
- Tentative closing costs will be disclosed on the initial Loan Estimate
- Often times than not, the disclosures on the Loan Estimate is over disclosed
- Borrowers will get a more accurate figure on closing costs more towards when they reach closer to the closing date
- Exact figures for all of the estimates such as homeowners insurance and other third party charges will be needed to get the exact closing costs
Actual closing costs will be listed on Closing Disclosure which is the new HUD -1 Settlement Statement. It is a federal law the Closing Disclosure (CD) needs to be disclosed three days before closing.
Sellers Concessions And Lender Credit To Cover Closing Costs On Home Purchase
At Gustan Cho Associates, most homebuyers do not have to worry about closing costs. This holds true as long as borrowers can get a sellers concession. Sellers concessions is a credit given to homebuyers for closing costs on their home purchase. Sellers concessions can only be used for a homebuyer’s closing costs. Sellers concessions cannot be used for the down payment of a home. Real estate agents normally negotiate sellers concessions between sellers and buyers. Home sellers normally inflate the bottom line price they want to the home purchase contract and the inflated amount is the amount given as a sellers concession. HUD, the parent of FHA, allows home sellers to give up to a 6% sellers concessions on FHA loans. Fannie Mae and Freddie Mac allows home sellers to contribute up to a 3% sellers concession for owner occupant homes and second homes. Sellers can contribute up to a 2% sellers concession on investment properties. USDA permits home sellers to offer up to 6% sellers concessions. VA allows up to 4% in sellers concessions. If home sellers are short in closing costs with sellers concessions, lenders can offer lender credit to cover borrowers closing costs in lieu of a higher mortgage rate.
To qualify for a home mortgage with a national mortgage company licensed in multiple states with no lender overlays on government and conventional loans, please reach out to us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at [email protected] The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.