What Are Home Closing Costs?
There are two types of payments that is required to close on a home purchase. The first is the down payment and second are closing costs. Down payment is self explanatory. For FHA loans, minimum down payment required on a home purchase is 3.5% down payment. For conventional loans, it is 5% down payment. For Jumbo mortgages, 10% is the minimum down payment. VA loans and USDA loans do not require any down payment. Condotel and non-warrantable condominium mortgage loans require 20% to 25% down payment. Second homes mortgage loans and vacation home mortgage loans require 10% down payment.
Closing costs are third party costs and fees that is required besides the down payment. Closing costs are any costs and fees associated with the closing transaction on either a home purchase loan or refinance mortgage loan. Example of closing costs are title charges, transfer stamps, recording fees, home inspection fees and costs, credit report fees, underwriting fees, courier fees, points to buy down the mortgage rates, and costs, one year homeowners insurance and/or flood insurance, escrows for taxes and insurance, and any other charges that is associated with closing the home loan loan.
How Much Are Closing Costs?
Closing costs are not a fixed percentage amount of a home’s purchase price like the down payment requirement. Closing costs vary from state to state and county to county. On average, closing costs are between 2% to 5% of the home purchase price, depending whether the home buyer needs flood insurance or not. Flood insurance can be quite costly. Costs associated with buying down mortgage rates are also considered as closing costs. For example, closing costs on a home purchase in Illinois is much less than closing costs on a home purchase in Florida. Average closing costs for an Illinois home that is $200,000 is $3,500 whereas average closing costs for a $200,000 Florida home purchase is $5,000.
What Are Non-Recurring Closing Costs
There are two types of closing costs. Non-recurring closing costs and recurring closing costs. Non-recurring closing costs are costs and fees that are paid only once and does not occur again. Some examples of non-recurring closing costs are title charges, escrow set up fees, notary fees and costs, wire fees, credit report fees and costs, underwriting fees, attorney costs and fees, endorsements, recording charges and fees, transfer stamps and transfer taxes, and mortgage lender costs and fees that is paid in conjunction with the origination of the mortgage loan per line 800 of the HUD settlement statement.
What Are Recurring Closing Costs
Recurring closing costs are also known as prepaid. These recurring costs are fees and charges that you will continuously pay as long as you own your home. Examples of recurring closing costs are homeowners insurance premium, flood insurance if applicable, property taxes, pre-paid interest, mortgage insurance premium, and other fees and charges .
Sellers Concession For Home Buyer’s Closing Costs
To offset closing costs from the home buyer, the home seller can give a home buyer a seller’s concession towards a home buyer’s closing costs. For example, if the bottom line dollar amount a home seller wants for their property is $100,000, the home seller can inflate the purchase price to $105,000 and give the home buyer a $5,000 sellers concession towards the home buyers closing costs. With the sellers concession, the home buyer can pay for title charges, transfer stamps, prepaids, homeowners insurance, attorneys fees, points, and other closing costs associated with the home purchase. Maximum sellers concession for FHA loans is 6%, for conventional loans with 5% down payment is 3%, for conventional loans with 10% or more down payment the sellers concession allowed is 6%, for VA loans is 4%, for USDA loans is 6%, and for investment conventional properties is 2%. If the whole sellers concession does not get used up by the home buyer, any excess in sellers concessions needs to be returned to the home seller. The home buyer cannot pocket any excess sellers concession.