What Are Closing Costs On House Purchase And Refinance Transactions?

Gustan Cho Associates
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This Is A BLOG On Closing Costs On House Purchase And Refinance Transactions Was UPDATED On May 13th, 2019

What Are The Fees And Closing Costs On House PurchWhat Are The Fees And Closing Costs On House Purch
Gustan Cho Associates

Home buyers need to worry about the down payment and closing costs on house purchase when it comes to a home purchase. The down payment is normally 3.5% for FHA insured mortgage loans.

  • Minimum down payment requirements for conventional loans is 5% of the purchase price
  • VA loan programs and USDA loan programs do not require down payments
  • Both of these two mortgage loan programs offer 100% financing
  • All home purchase and/or refinance mortgage loan transactions have closing costs
  • Closing costs on house purchase are any fees and/or costs associated with the home purchase and/or home refinance of a residential mortgage loan
  • Examples of closing costs on house purchase are transfer stamps, title insurance, homeowners insurance, pre-paid items ( insurance and tax escrows), and any other fees and costs associated with the transaction of the purchase and/or refinance of the property
  • Closing costs on house purchase can vary depending on the state and county where the transaction takes place and can be anywhere between 2% to 4% of the transaction amount
  • On a $200,000 home purchase, closing costs can range from $4,000 to $8,000
  • Closing costs can really put a dent on a home buyer’s finances

Ways Of Avoiding To Pay Closing Costs House Purchase

There are two ways a home buyer can not worry about paying for closing costs on house purchase.

  • The first and most common method is by getting a seller’s concession towards a buyer’s closing costs
  • What is a sellers concession?
  • A sellers concession is when a seller will contribute toward part or all of the home buyer’s closing costs on house purchase
  • For example, say a seller wants a net of $100,000 in his pocket from the sale of his home and wants to help the buyer cover his closing costs because the buyer can only come up with the 3.5% down payment for an FHA loan
  • The seller can raise the real estate purchase contract price to $105,000 and give the home buyer a $5,000 sellers concession towards the buyers closing costs so the buyer does not have to worry about paying closing costs
  • The seller gets his $100,000 net price in his pocket, the buyer does not have to worry about any closing costs and only have to worry about the down payment and the deal is done
  • The home needs to appraise and any leftover proceeds from the sellers’ concession cannot be given to the home buyer in the form of cash
  • Any left over sellers concession needs to be returned back to the seller
  • A home buyer does not want to waste any sellers concessions
  • The maximum amount of sellers concession allowed with an FHA loan is 6% and the maximum amount of sellers concession allowed with a conventional loan is 3%
  • Maximum sellers concession towards buyers closing costs on a VA loan is capped at 4%
  • Maximum sellers concession towards buyers closing costs on an investment conventional mortgage loan is capped at 2%
  • Maximum sellers concession towards buyers closing costs on a USDA mortgage loan is capped at 6%d

What Is A Lender’s Credit?

What Is A Lender's Credit?

If the seller is not willing to give a sellers concession towards the home buyer’s closing costs, then the second way the home buyer can offset his or her closing costs is by getting a lenders credit towards a buyer’s closing costs.

  • What this means is for a slightly higher rate, lenders can give borrower cash credit to cover their closing costs
  • For example, say a borrower gets approved for a $200,000 mortgage loan at a 4.25% mortgage rate
  • Say the closing costs are $5,000
  • The mortgage lender can offer to give a lenders credit of $5,000 towards borrower’s closing costs at a rate of 4.75% in lieu of the 4.25% original par rate
  • Maybe at a rate of 4.5%, the lender’s credit amount might be $2,500
  • Borrowers can elect to choose the 4.50% mortgage rate and get a $2,500 lenders credit and pay $2,500 out of pocket to cover the $5,000 in closing costs
  • Some of the fees and costs are related to borrower’s mortgage loan application
  • Examples of above costs and fees the expense of a credit report on all applicants and rapid rescore fees and costs
  • Other fees and costs are related to the subject property itself, such as the following:
    • attorneys fees
    • title charges
    • origination fees
    • transfer stamps
    • pre-paids
    • property home appraisal
    • pest inspection fees
    • home inspection fees
    • well inspection
    • roof inspection
    • termite inspection fees
    • mold inspection fees
  • Closing costs includes any other third party fees

How Much Are Closing Costs On Home Purchase Loans

Unless the home seller offers to pay closing costs by giving home buyers a sellers concession towards the home buyers closing costs:

  • These expenses are charged to the buyer and often runs between 2 and 3 percent of the amount being borrowed
  • In Illinois, the seller can assist up to 6% in sellers concessions of the loan amount in paying the closing costs for the buyer on FHA Home Loans
  • Maximum sellers concession allowed on a owner occupant or second home conventional loan is 3% sellers concession
  • Maximum closing costs allowed on an investment property conventional loan is 2% sellers concession
  • The maximum closing costs allowed on a VA Loan is 4% sellers concessions
  • Closing costs can be paid by the lender for a higher interest rate too through a lenders credit towards closing costs
  • Because different states have different fees and taxes that are a part of these costs, it’s impossible to generalize nationwide

Examples Of Closing Costs On Home Purchase Loans

What are some examples of closing costs for loans to buy a home

Common closing costs can include the following:

  • Processing and underwriting fee
  • Mortgage insurance premium
  • Home appraisal fee
  • Credit report fees
  • Tax service fee and application fee for third party vendors
  • Recording fees for the county
  • Transfer stamps
  • Title charges
  • Commitment
  • Wire transfer fee, etc.
  • Escrow accounts are often required for homeowners insurance, real estate taxes, and homeowners associations
  • Escrows require cash deposits at closing
  • Pre-paids is part of closing costs on home purchase loans

Once a mortgage loan applicant applies for a mortgage with a loan officer. the loan officer will send out the Loan Estimate, which replaced the old Good Faith Estimate. On the LE, it will have all estimated closing costs. Most closing costs disclosed on the Loan Estimate is over disclosed.

Lender Credit For Closing Costs On Home Purchase Loans

The Gustan Cho Team at Loan Cabin Inc. can help borrowers who are short on closing costs on home purchase loans by covering the shortage of the costs with a lender credit.

  • This way borrowers do not have to come with any money out of pocket
  • Most of our borrowers who refinance with us, there is no closing costs on refinances because we cover the closing costs

Home Buyers who need to qualify for a mortgage with a direct lender with no overlays on government and/or conventional loans please contact Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com.

Gustan Cho

www.gustancho.com

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