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House Closing Costs

House Closing Costs Can Eat Up your Equity

Closing costs are an inevitable part of buying or refinancing a home. Closing costs can represent a significant out of pocket expense. If you are involved in stopping foreclosure this becomes problematic as you are likely trying to conserve whatever cash resources you have.

Closing costs are unavoidable for at least one of the parties involved, but there are ways to reduce this expense. Education of the home buying process is necessary and consumers should educate themselves on the closing process and all of the fees involved. They should also learn about potential scams that less scrupulous companies may employ so they can protect themselves. To avoid being victimized, along with obtaining the best deal on house closing costs, borrowers should carefully consider the following advice.

Do your homework. Educate yourself on the multitude of options available that reduce house closing costs. Learn which are beneficial and which ones just transfer the costs to the loan, which can end up costing more in the long run. With the amount of information available today there is no excuse for being unprepared. Visit your local library, bookstores, search the Internet and read free information from experts in the field. There are forums on the Internet where others like yourself who have been through this left their comments on the experience. This type of information is priceless, and best of all it isn’t slanted to selling you anything. The information is out there and consumers should read and digest everything they can. It is also a good idea to do some research on real estate scams and real world examples of mistakes that others have made.

A recent phenomenon gaining popularity is no closing cost loans. They seem like a great idea, but the problem with these types of offers is that in reality the house closing costs are simply added to the mortgage and the borrower ends up paying more interest on the loan. In the end the house closing costs could end up costing significantly more than if they were paid up front. If there is no money available to pay house closing costs up front this option may be beneficial but if it can be avoided do so by all means.

If the real estate market in your area is favorable for it then consider negotiating with the seller to pay all or some of the closing cost themselves. If homes are selling quickly and at market price it may be more difficult to convince the seller to contribute to house closing costs as there is a good chance that the house will sell otherwise.

If you find that local real estate promotes a buyers market then you have much more leverage, especially if the seller is having a difficult time selling the house. They may be more willing to negotiate an agreement to help with or pay for all of the house closing costs. If you happen to be refinancing this option is unavailable.

One of the largest components in house closing costs is title insurance. Many consumers are unaware of what title insurance and do not know that they need it. That is until they see it as one of the costs on the closing documents. Because of this lack of knowledge most consumers have no idea of their right to shop around for title insurance. They simply allow their mortgage broker or real estate agent to take care of this, which can be a big mistake. By shopping around for title insurance consumers can cut $100’s or even $1000’s from their house closing costs.

There are other fees, such as courier fees, notary fees, documentation fee, overnight delivery fee, points, processing fee, and others which may be duplicates of other fees, or which are fees which the originator has marked up to add to it’s profit margin. These are the fees, sometimes called hidden fees, which you may overlook or not feel you have the right to question. You do have that right.

There are other options available that can cut house closing costs whether you are refinancing or buying a home. A little research can go a long way and if consumers take the time they should be able to find something that suits their needs. We all want to save money, conserve any home equity, and all it takes is a little time to gain some knowledge and make the appropriate decisions.

House Closing Costs

House Closing Lawyer Fees

How Much Should I Expect to Pay in for a House Closing Lawyer When Doing My House Closing?

House Closing Lawyer – House Closing Costs

How House Closing Costs Affect Home Mortgage Rates

House closing costs have a significant impact on the home loan rate that is paid when obtaining a new mortgage loan. Here are a few of the major house closing costs and how they affect the home mortgage rates.

House closing costs Affecting Home Mortgage Rates

First time home buyers or borrowers are often rather unpleasantly surprised at the time of closing or just prior when the good faith estimate of house closing costs is received. These house closing costs can sometime add a significant cost to the dollar amount that the borrower is expected to provide to clear the escrow account at the time of closing or shortly thereafter. The home loan rate is not directly tied to each of the house closing costs, but indirectly, you will pay the house closing costs. You should make sure you realize and understand each of these costs and how they impact your total cost of the loan.

Definitions

‘House closing costs’ is just one of the definitions that you should understand when considering obtaining a home loan. The ‘home loan rate’ is another. Closing costs are expenses related to the obtaining of the loan, such as document preparation, title search, appraisals, and various other expenses. These costs are typically listed as part of the closing process on the loan. The closing of the mortgage at the title company or with the loan officer will spell out each of these costs and who is responsible for payment of the cost at closing.

Title search

One of the responsibilities that must be met is a search by a title company of court records to insure that the ownership or title to the home in question is clear. They will be looking at sales and deed records to determine that the sellers actually have the legal authority to sell the property. There is a fee charged by the title company to conduct this search. The clear title means that the title company can guarantee the title is correct and that you will have a clear title to the property in question after closing. The title company actually provides a type of insurance, known as title insurance. The cost of the title insurance is one of the house closing costs built into the home mortgage rates.

Origination fees

Another factor in the home loan rate is that of origination fees. These are costs associated with the work the lender or broker does in opening an application file and working to collect and pass on all the necessary documentation required to complete the loan according to the contract. These fees can be sizable or modest, depending upon the broker, but in most cases are negotiable also that fact is not commonly known.

Points

The borrower may be required to pay ‘points’ as part of the loan fees. There are two types of points that you may be asked to cover. Origination points are the fees you pay your broker or lender to secure the loan while discount points are essentially interest that you prepay in order to manage the best interest rates on your loan. Both types of points are usually paid at the home of closing. Payment of the discount points can significantly lower your home mortgage rates meaning thousands of dollars less in cost over the life of the loan.

house closing costs

FHA Closing Costs – How They Differ From Conventional Mortgages


FHA Closing costs differ from conventional mortgages by the amount the lender can charge and the amount of insurance coverage homeowners are required to have. FHA mortgages are the last of the government sponsored mortgages. Fannie and Freddie started out as a government charter but privatized over a decade ago. Since FHA is government operated, there are specific safeguards which have been designed to protect borrowers from paying too much house closing costs. However, as is the case with most government programs, there’s loopholes.

When lenders and brokers close a loan, they all incur cost during the process. These costs are passed along to the borrower in the form of higher rates, or house closing costs that are added directly to the closing statement (HUD). In the past, lenders have been known to be very liberal when applying their fees; these extra charges are called “junk fees.” Before you apply, you should insist that the lender disclose their fees on a form called good faith estimate (GFE, you can print a blank form from the link below.)

If you look at your GFE you will see a grouping of fees on the left hand side. Each fee is labeled 801, 802, and so on. These are the lenders fees. FHA has strict guidelines pertaining to the fees that lenders are allowed to charge when closing a loan. Unfortunately, they are very open-minded on the amount of discount points and origination points that they allow lenders to charge.

Lenders are allowed to charge one origination point and two discount points plus the “usual and customary” third party house closing costs that FHA deems relevant. If you combine those fees with the additional money that the lenders can earn from “marking-up” the interest rate; lenders could make as much as $12,000 profit on a $200,000 loan.

In all fairness, most lenders don’t fleece their customers like this, however some do. If you are considering taking out an FHA mortgage I advise you to look at your good faith estimate carefully. If you see discount points listed in the “800” block of numbers do not close your loan. Some lenders will give very compelling arguments as to why they need to charge them, don’t believe it. By disallowing the lender to use discount points, you have effectively forced them to keep their house closing costs in-check.

Another difference in charges that you will see over conventional mortgages pertains to the insurance each agency requires when taking out the loan. Conventional mortgages (Fannie Mae, Freddie Mac) will allow borrowers to forego the mortgage insurance if the loan is less than 80% of the appraised value. Not so with FHA, when you take out an FHA mortgage you will be forced to have mortgage insurance regardless of the loan to value. The exception is when you take out a 15 year mortgage, if your loan is less that 90% of the value of the home you can forego the monthly mortgage insurance.

Also, FHA charges an up front mortgage insurance premium (MIP). This is a one time, lump sum that is added on top of your loan. The MIP is calculated at 1.5% of the mortgage’s loan amount, i.e. a $100,000 mortgage would become a $101,500 loan amount. This premium is refundable on a prorated basis but, the formula that is used to calculate it is stored in the same warehouse that Indiana Jones keeps his worldly treasures.

When you begin to add up the differences between FHA house closing costs and conventional mortgages, it would appear that FHA mortgages have the higher closing. However, it really depends on what your specific circumstances are as to whether or not an FHA mortgage is right for you. If you have good credit and a low loan to value, a conventional mortgage is definitely the best road to take. Even if your loan to value is a little high, you may still want to consider a conventional mortgage. A conventional mortgage charges PMI just like an FHA loan does, however it can be easily removed one the home falls below 80% loan to value, unlike FHA mortgage insurance.

On the other hand, if you have average credit and a higher loan to value FHA becomes the clear winner when choosing the most beneficial loan. The most important reason is that FHA is not a credit score driven product. FHA is a common-sense loan, meaning your credit score doesn’t have a bearing on your ability to get approved. FHA looks at the property, the income, the job stability and the overall responsibility the borrower has exercised in the last year. Of course there are more guidelines, but you get my point. Not to mention that FHA allows homebuyers to put as little as 3% down when buying a home.

house closing costs

Pay for House Closing Costs With a Cash Gift

Pretty much every loan requires some part of down payment, even if you get a 100% financing loan.  After all, you still are generally going to be required to put down some earnest money on your contract and in most cases, pay for an appraisal up front.  You may have been trying to save it up on your own, but it may be time to accept some help from your family.
Most loan programs, be it Conventional, FHA, VA or Rural Housing, require the borrower to pay for something.  In particular, FHA and Conventional home purchases want a minimum of 3% to come out of the borrower’s pocket.  If you are doing a Conventional loan, you still can’t receive a gift for your 3% down payment, but you can use a gift to help with house closing costs. However, the FHA will allow your source of down payment to be a gift.  So, if you find yourself a bit short on cash, you may need to ask someone to gift you the down payment or house closing costs (or both).

All lenders are particular about just who can give you a gift for your down payment or house closing costs.  Pretty much across the board, the gift must be from a blood relative.  You may have to prove that the gifter is a relative thru birth certificates, christening records, etc.  Strange but true.  Conventional loans will also allow an employer to give you a gift.  But in any case, the most important factor is that whoever is giving the gift does not expect to be paid back.  A certification to that effect will be required to be signed by the donor.  Otherwise, it’s really a loan, now isn’t it?  And as a responsible lender, we’re going to include that payment in your debt to income ratio, and we’ll probably want a bunch of documentation to prove the terms, etc.  So, make sure it truly is a gift.

Usually, FHA will allow for down payment assistance programs, such as Nehemiah or Ameridream.  Lenders view these products as “gifts” in a sense. They are basically seller concessions funneled through the down payment assistance channels.   However, by the time this article is published, they may be null and void.   It’s currently being reviewed and could go away.  Or it may still be there, but just know it’s under review.

Lenders are very particular about how the gift funds reach the closing table.  If you deposit the gift before closing, you have to show it coming out of the donor’s account and depositing into your account.  It’s a lot of paper to collect.  The easiest method is for Grandpa or your Great Aunt to just send a cashier’s check payable to you and your title company to the closing table.  Smoother, quicker, simpler.

Gifts are a wonderful thing, and a gift of a down payment is a useful gift.  After all, I think it’s safe to say that homeownership is one gift that keeps on giving, wouldn’t you?

house closing costs

Seller Pays House Closing Costs

When you’re considering making an offer on a home, there are other ways to get a good deal other than just snagging the lowest price you can imagine.  Most loan programs allow the seller to concede money toward the buyer’s house closing costs that would normally walk away with the seller in his pocket.  Oftentimes, seller paid house closing costs can make a home more affordable for you.  You just have to make sure you stay within the allowable guidelines for the mortgage product you need.

You see, a lot depends on what type of loan you are getting.  The scenarios I am going to discuss all pertain to if you are buying your primary residence, not an investment or second home.  And the reason the amount that a seller can pay on your behalf varies from product to product is because different loan types have different documentation requirements, and therefore, different layering of risks.  So, it’s important to compare apples to apples.  The less money out of your pocket invested into your home presents a higher risk for the lender, regardless of the source of the funds to close.

For instance, I had a loan the other day where the seller had agreed to pay up to 6% of the sales price in house closing costs on behalf of the borrower.  Totally reasonable since the borrower was getting an FHA loan.  Unfortunately, the home wasn’t up to FHA standards, and the loan had to switch to Conventional financing.  Whoops.  Conventional financing only allows for 3% seller concessions if one is putting less than 10% of the sales price down on the property.  All of a sudden the negotiated contract wasn’t working out to the benefit of the borrower quite as nicely.  She actually would be paying more for the property than she need be without the same benefit to her unless she re-negotiated a lower sales price.  Why is that?  Well, originally the sales price was $100,000.  The seller was giving her $6,000 toward house closing costs and walking away with $94,000 in his pocket.  Now, Conventional underwriting guidelines would only allow him to give the buyer $3,000.  So his pockets would be a bit fuller unless the buyer renegotiated.

Different loan programs have different allowable amounts for seller concessions.  For instance, VA loans allow the seller to pay 4% of house closing costs, and Rural Housing loans have no limit on seller paid house closing costs.  Conventional loans will allow up to 6% seller paids, but the buyer has to put more than 10% money down on the property.  And finally, FHA allows for 6% of sales price paid on behalf of the buyer toward house closing costs.

Don’t lose sight of the fact that seller paid house closing costs usually don’t count toward a buyer’s minimum out of pocket investment required.  For conventional and FHA, you usually have to come up with at least 3% of your own funds regardless of how much the seller is willing to help out.  VA loans and Rural Home loans allow for 100% financing in most cases, so you’re good to go there.  And FHA will allow the seller to participate in a down payment assistance program and contribute toward your 3% investment, but that’s a whole other article to write (and who knows if it will still be ok by the time this article makes it to print).

Your best rule of thumb is to work with a lender and realtor who know what they are doing.  And if you have any doubts, your lender should be able to define your limitations for you pretty quickly.  So, arm yourself with knowledge when negotiating your contract.  It is always to your advantage to negotiate from a position of strength, and knowledge is power in this case.

Closing On Your Home

The Truth About Owner Builder Loan House Closing Costs

After owner builders work their way through the maze of owner builder construction loan qualifying, it will be time to close on the loan. This is essentially where you sit down and sign a huge stack of documents that you will never read, or understand if you try.

Basically, this is where the owner builder loan promises to give you the money, and you promise to repay it. Sounds simple, but it will take a hundred or so pages to accomplish it.

Owner builders are typically free to choose any closing agent to conduct the closing. In most states, owner builders can choose either an attorney or a title company to perform this function. Some states require you to use an attorney.

Once you sign all the documents, the closing agent still must record them with the county registrar, making the owner builder construction loan official. This is usually the day after your signing.

During construction, as an owner builder requests specific loan draws, the lender will most likely request the closing agent to do periodic updates of the title to make sure no liens have been filed to date.

Most good owner builder construction loans are one-time-close, construction to permanent loans. Once you are finished building, there are no more closings to convert to your permanent mortgage. At this point most lenders simply send you a final loan agreement with the final loan amount and interest rate and terms for your signature. There should be no need to go back to the closing agent again for a second round of document signing if the owner builder loan is set up properly.

Owner builder loan house closing costs typically consist of three components: broker/lender fees, loan fees, and third party fees. Remember two things about house closing costs when considering owner builder financing.

First, house closing costs for construction loans, in general, and owner builder construction loans, especially, are going to be slightly higher than costs for a plain purchase or refinance mortgage. Accept this and shop for the loan that best fits your needs. Do not waste your time looking for an owner builder construction loan that has the same terms as the refinance loan you did two years ago. Do not try to compare apples to pineapples.

Second, just because an owner builder construction loan has slightly higher costs does not mean that it is not a great deal. Remember the big picture. You are considering being your own contractor to build the exact home of your dreams and save tens of thousands of dollars doing so.

If your research shows that you can save, for example, $65,000 by being an owner builder, is it no longer a great deal if you only save $63,000? How about $58,000? $53,000? Realize that you are still saving a ton of money while building your dream home, despite the slightly higher financing fees that come with owner builder loans.

Brokers earn their income on owner builder loans by charging origination fees for their service. This is a percentage, called “points,” of the loan amount. One point equals one percent of the loan amount. By charging an origination fee, the broker is able to give you access to a lender’s wholesale rates. The broker is also able to represent you and your best interests by offering access to a variety of loan programs.

Working directly with a lender is also occasionally an option. Direct lenders are typically compensated the same way as a broker; by charging points.

Perhaps the best option is working with an organization that has expertise in owner builder loans, that is a direct lender, and that also has the option of acting as a broker when needed. This will give you the best of both worlds while ensuring you are working with a specialist.

The number of points you should expect to pay will vary by loan program and lender. For very specialized loans such as owner builder construction loans, it is common to pay approximately two to three points in total fees. This is a small price to pay for access to a program that will allow you to save tens of thousands of dollars while building the home of your dreams.

In addition to broker or lender fees, your loan’s house closing costs will include loan fees. These fees include items such as underwriting, document preparation, draw administration, loan processing and a variety of the other small fees. For a construction to permanent loan (remember you are getting two closings in one), expect to pay approximately a half to one percent of your loan amount in total for these fees. Most of these fees are fixed amounts, so the percentage will be higher for lower loan amounts.

The third component of your owner builder house closing costs are made up of things the lender or broker has no control over, hence the name “third party” fees. Third party fees are also, for the most part, not affected by the type of loan you choose. They are, however, influenced by the size of the loan. Third party fees consist of your closing agent’s fees, title search and title insurance fees, recording fees to the state, county or locality and any state or local taxes. Most of these items are set by the state and local governments and are simply the price of buying or owning a home in that area.

All told, owner builders can reasonably expect to pay approximately two and a half to four percent of their construction loan amount in house closing costs. Some states may have high transfer taxes, excessive title insurance fees or other high state or local fees that will increase your costs.

Overall, the total house closing costs are not bad when you consider you are closing on two loans in one and being given a loan to undertake a process most lenders consider extremely risky. Plus, owner builders get to build their dream home while saving tens of thousands of dollars.

house closing costs<

The Costs of House Closing

Whether you are buying or selling, closing a sale can be costly. There is a lot to think about above and beyond what the mortgage payments will be.

Firstly, there’s the down payment. The more you can afford, the less your loan will be, but while the standard minimum required used to be about 10%, many new programs are available that allow the buyer to have only 0-5% down. Keep in mind that with no money down you will need to have an amazing credit rating and Private Mortgage Insurance (PMI) will be required. For the lending institution to determine your credit, you must pay a fee of around $50. A tax company may be contacted to verify that you have payed your taxes, and this is another roughly $75.

Sometimes there is a lenders fee, roughly 1-3% of the total loan, so talk to your loan agent about this. If you need the home you are buying appraised so that your loaning institution can determine the loan amount, this appraisal fee can be at least a few hundred dollars and sometimes as much as $1000. If you are assuming the sellers mortgage, there may be an assumption fee of a couple hundred dollars or up to 1% of the total loan amount.

Whether buying or selling, you may want the home to be inspected for various things. The advantage for sellers is that this is reassuring to buyers and can speed the selling process. The advantage for buyers is that they will then know exactly what they are getting, and their lending institution may require it before granting the loan, or as part of the market evaluation. Some examples of what may need inspecting are property inspections, including a check of the foundation, construction, plumbing and electrical system. These generally cost a few hundred dollars.

A roof inspection is often done separately for about $100 or less. If the area the home is located may be on a fault line or a landslide area, geological inspections are recommended. You may also want to have the home inspected for pests such as termites or carpenter ants, things that threaten the structural integrity of the home. This can generally run around $100 or more if the home is very large.

If the home is on a septic system, it is a good idea to get this checked as well. Septic inspections are surprisingly expensive, running at an average of a few hundred dollars. But imagine the alternative of discovering a problem after you’ve moved in.

If the home is older, testing for asbestos, radon or lead may be important. You want to ensure your home is as safe as possible for your family.

Then there are various insurance costs. In addition to mortgage insurance, you might consider extended title insurance. This covers any liens that may have been unrecorded, and may be required by lenders. It is based on a percentage of your loan amount.

Don’t forget the various taxes. Your municipality may have a tax based on the final price of the home. If you are a veteran you should be exempt from this tax.

While all of the prices listed above are relative, it is important to keep in mind that there will be extra fees associated with the closing process. If you are buying, you may be able to negotiate with your real estate agent to have the seller pay house closing costs. However there may be a limit that they are willing to pay, so make sure this is negotiated completely beforehand, and realize any inspections you decide to conduct after your negotiations will be at your expense. This is one reason for a thorough examination of the home before you make an offer.

house closing costs

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