This BLOG On What Are Closing Costs On Home Purchase Transactions Was UPDATED And PUBLISHED On July 3rd, 2020
What are closing costs?
- Whether buying a new home or refinancing a current home loan, there are closing costs associated on any home closing transaction
How Much Are Closing Costs
- Closing costs vary from state to state, county to county, city to city
- There are states where closing costs are much more than others
- For example, closing costs, in general, are much higher in the state of Florida than the state of Illinois
- Some states not only charge transfer stamps but also intangible taxes as well
- The higher the loan amount is, the more the state taxes are
Whether it is a home purchase loan, an FHA streamline loan, a refinance mortgage loan, or cash-out refinance mortgage loan, borrowers will have closing costs on any new mortgage closing transaction.
Closing Costs Explained
Closing Costs Explained
- Closing costs are the costs and fees that a home buyer or homeowner pays at closing when they buy their new home or refinance their current loan to a new mortgage loan
- Closing costs are fees and costs that are charged by lenders and all third-party vendors such as title companies, attorneys, insurance, and government agencies
- A home closing is when the title to the property is transferred from the home seller to the home buyer
- Or when the current homeowner transfers their mortgage loan to another lender on a refinance mortgage transaction
- On a home purchase transaction, there are fees and costs home buyers are responsible for and sellers are responsible for
- On a home refinance mortgage loan transaction, the homeowner is responsible for all closing costs
On a home purchase transaction, the home buyer needs to come up with the down payment of the home purchase plus the closing costs.
What Is Included In Closing Costs?
As mentioned earlier, it is rather difficult to determine an exact amount the home buyer or homeowner needs to come up with closing costs.
- It is not like coming up with a down payment on a home purchase such as FHA requiring 3.5% down payment on a home purchase
- Conventional Loans requiring 5% on a down payment on a home purchase
- Closing costs vary anywhere between 2% to 6% on the value of the home
- The big range of closing costs is because every city, county, state the property is located has different fees and costs
- Closing costs also depends on the property type
Condominium purchases have higher closing costs than single-family home purchases.
Examples Of Closing Costs
Examples of closing costs include the following:
- origination fees
- credit report fees
- underwriting fees
- processing fees
- appraisal fees
- home inspection fees
- survey costs and fees
- title insurance costs
- title search fees
- pre-paid where escrows need to be set up
- pest and termite inspection fees
- attorney’s fees
- government recording fees
Any other fees and charges to close a home loan is considered closing costs.
How Much In Closing Costs Would You Pay?
The mortgage loan originator can give borrowers a rough estimate of how much closing costs will be. The LE, Loan Estimate, will disclose all potential closing costs:
- Closing costs will range anywhere between 2% to 6% depending on the state the property is located
- On a smaller loan amount, borrowers can expect the 6% range were on a larger loan amount the closing costs will be more towards the 2% range
For Example, closing costs on a $100,000 home purchase may be $5,000 or 5% whereas closing costs on a $500,000 may be $10,000 or 2% of the home purchase price.
What If I Cannot Come Up With Closing Costs?
Many first time home buyers are limited with coming up with their down payment on their home purchase.
- FHA Loans require 3.5% down payment on a home purchase
- Conventional Loans require either 3% down payment for first time home buyers and 5% down payment for seasoned home buyers
- Most homebuyers do not have to worry about coming out of pocket for closing costs
- This is because most home sellers will give home buyers a sellers concession towards home buyers closing costs
If the seller is not willing to give a seller concession, lenders can give the home buyer a lender’s credit towards the borrowers closing costs.
How Does Sellers Concessions And Lenders Credit Work?
A sellers concession towards home buyers closing costs is when a home seller offers to pay for part or all of the home buyers closing costs.
- Why would a home seller do that?
- If a home seller wants a net bottom price of $100,000 for their home, the seller can inflate the purchase price to $104,000 and give the home buyer a $4,000 sellers concession
- The home buyer can use all of the seller’s concessions on closing costs only and cannot use it towards the down payment
- Any overage in sellers concessions needs to go back to the home seller
- Make sure not to get too much sellers concessions where it is wasted
- The overage seller’s concessions cannot be given to the home buyer in the form of cash or any other type of value
- In the event, if a home seller cannot or is not willing to give a sellers concession, the home buyer can get a lenders credit towards closing costs
- Lender credit can be offered by lenders for a higher mortgage rate
The mortgage lender can cover part or most of the home buyers closing costs with a lender credit.