This BLOG On Closing Costs On Home Purchase And Paying With Sellers Concessions Was UPDATED And PUBLISHED On October 11th, 2020
Homebuyers will incur two types of funding requirement on a home purchase.
- down payment
- closing costs on home purchase
In this article, we will cover and discuss the topic of how to closing costs on purchase transactions.
Down Payment Requirements On Home Purchases
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 such as third party charges.
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
- title charges
Any other fees and 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 are fixed depending on the mortgage loan program.
- For example, FHA requires a minimum 3.5% down payment on a home purchase
- Conventional loan programs require a 3% to 5% minimum down payment on a home purchase
- Jumbo mortgage lenders normally require 20% down payment on a home purchase
- VA loans and USDA loans do not require any down payments
- 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
- Processing fees Underwriting fees
- Title search fees
- Title insurance costs and/or fee
Appraisal fee which is normally paid outside closing.
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
How Much Are Closing Costs?
As mentioned earlier, closing costs can vary depending on where the property is.
- Normally, closing costs are between 2% to 3% and 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.
Sellers Concessions And Lender Credit To Cover Closing Costs On Home Purchase
Most homebuyers do not have to worry about closing costs. As long as borrowers can get a sellers concession. Sellers concessions are when a home seller with credit home buyers closing costs. FHA allows a home buyer to get up to a 6% sellers concessions. Fannie Mae and Freddie Mac allows a home buyer to get up to a 3% sellers concession for owner occupant homes and second homes and up to a 2% sellers concession on an investment property. USDA permits up to 6% sellers concessions. VA allows up to 4% in sellers concessions. If sellers are short in closing costs with sellers concessions, lenders can offer lender credit to cover borrowers closing costs in lieu of higher mortgage rates.