Understanding Closing Costs On Home Purchase And Cash To Close

This BLOG On Understanding Closing Costs On Home Purchase And Cash To Close Was UPDATED And PUBLISHED On July 10th, 2020

Understanding Closing Costs
All mortgages have closing costs

Understanding Closing Costs:

Closing costs and down payments are two types of costs a home buyer needs to come up with on a home purchase loan.

  • Homeowners who refinance their mortgages also need to come up with closing costs
  • Closing costs are costs associated with the purchase or refinance mortgage of a home loan
  • Someone needs to pay the closing costs
  • Closing costs can be paid by the home buyer, the homeowner doing the refinance, the mortgage lender, the seller on a home purchase via sellers concession or a combination of all
  • Understanding closing costs is important for both home buyers and mortgage refinance borrowers

In this article, we will discuss and cover Understanding Closing Costs On Home Purchase And Cash To Close.

Understanding Closing Costs Paid By Lender

Refinance mortgage loans in which the closing costs are paid by the lender are commonly referred to as zero closing cost loans due to lender credit.

  • In fact, the term no closing costs is deceiving
  • This because there is no such thing as free in this world
  • No closing costs refinance mortgage loans is when the borrower does not have to come up with paying for closing costs
  • The mortgage lender will cover the closing costs in lieu of a higher mortgage rate charged to borrowers

Lenders will normally charge a 0.25% or more mortgage rate premium in lieu of covering the borrower’s closing costs.

Types Of Closing Costs

There are two categories of closing costs.

  1. The first type of closing costs are the mortgage lender closing costs also called origination fees
  2. The second type of closing costs are the third party closing costs

Both of these closings costs are part of a home purchase mortgage loan and refinance mortgage loan.

Understanding Closing Costs Lender Charges

What are the lender's fees?

Closing costs lenders charges are costs and fees such as mortgage loan origination fees and discount points for lower rates.

There are also mortgage lender fees such as the following:

  • underwriting fees
  • processing fees
  • credit report fees
  • document prep costs

Lender costs and fees are disclosed on the Loan Estimate and Closing Disclosure.

Third-Party Charges 

The second category of closing costs is third party charges.

Third-party closing costs are fees and costs that the mortgage lender has nothing to do with such as the following:

  • title charges
  • attorneys fees
  • transfer taxes
  • intangible county taxes
  • recording fees
  • other third party charges associated with the home purchase or refinance mortgage

Closing costs vary on the county the property is located and the type of property.

Sellers Concession Towards Buyers Closing Costs

It is always recommended that a home buyer trying to get a seller’s concession towards a buyer’s closing costs.

  • With a sellers concession, a home buyer can cover most or all of their closing costs
  • However, buyers can not have excess sellers concession
  • If buyers have extra sellers concession, then the excess will need to go back to the seller
  • A home seller cannot give the extra sellers concession to the home buyer in the form of cash or credit
  • A home buyer needs to use all of the sellers’ concession he or she receives
  • Sellers concessions can be used for discount points
  • Discount points are fees mortgage lenders charge to borrowers buying down their mortgage rates

In the event there are excess sellers concessions, most lenders will advise borrowers to buy down mortgage interest rates.

Cash To Close

What are Cash To Close

Figures on Loan Estimates are often overly disclosed and are not the exact figures required by borrowers. After the mortgage underwriter issues a clear to close, the mortgage company closing department will prep docs and disclosures. The exact figure on how much borrowers will need to bring to closing is called cash to close. This will be disclosed on the final CD and this is the number of money borrowers need to bring to the closing table.

Leave a comment