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Tag: closing costs

Can I Purchase a House with No Closing Costs?

Let’s get this straight and right up front: every real estate transaction will have closing costs – title fees, origination fees for a loan (if you need to finance the property), and recording fees, just to name a few.

So, how can a buyer purchase a house without actually paying those closing costs? Well, read on for more!

What this really means is that the closing charges are folded into the loan balance — if the house can appraise for the selling price plus the closing costs.

And there are pros and cons to doing this, as will be highlight later.

It’s also likely that not every single closing cost can be rolled into your loan. The buyer will most likely still be required to pay some fees at the settlement table. Those specifics will vary by lender.

I’m linking to a fantastic article by Hal Bundrick at Nerdwallet – he’s a personal finance writer as well as a certified financial planner.  You can find the entire article here…but I’ve highlighted a few excerpts:

What Are Closing Costs?

 “Closing costs” is a collective term for the various fees and charges you’ll encounter when buying a home. Some of these fees come from the lender and others come from third parties that are involved in the transaction, like home appraisers, homeowner associations (HOAs), and title companies.

How much are closing costs usually?

On average, homebuyers pay closing costs ranging from 2% to 5% of the purchase price. Unfortunately, this is only a ballpark figure, as there are many variables in each individual transaction. You can find out more specifics on closing costs here…

Many lenders will require that you apply for a loan prior to receiving a more precise estimate of closing costs; however, some lenders are more transparent with their available options and will do the necessary legwork to provide you a better idea of those costs.

Can you buy a house with no closing costs?

The reality is that closing costs have to be paid one way or the other – and by some or all parties in the transaction. Your decision will be whether you pay them with cash when you sign your loan, or as an added expense in each monthly mortgage payment.

How a no closing cost purchase works – it’s all in the financing

Per Bundrick in his article: “lenders can structure no closing cost loans in two ways. The differences between them are subtle, yet the result is the same.”

  1. You finance the closing costs. In this case, the lender will add your closing costs to your total loan balance. Your monthly payments will be slightly higher, and you’ll be paying these closing costs, with interest, for the full term of your loan — so, for example, over a period of 15 or 30 years.
  • The lender will absorb the closing costs in exchange for a higher interest rate. Again, you’ll pay a bit more each month, and your total interest cost will be greater over the life of the loan.

Either way, your monthly payment rises slightly. You’ll pay less at the closing table, but more over the long term.

Is a no closing cost mortgage a good idea?

The answer is….it depends!

If you are a little low on cash and have found your dream home, then yes – rolling $4,000 to $8,000 into your mortgage is a good idea.  It won’t increase your monthly payment by much and generally doesn’t impact qualification.

Also, if you plan on moving, selling, or refinancing in the short term, wrapping your closing costs into the balance can be a good strategy.

However, if you’re going to live in your new home for the long-term, you will pay more over the life of the loan by financing your closing costs or accepting a higher interest rate.

So if this is your forever home and you plan on keeping the mortgage for 7+ years, it’s probably best to pay the closing costs up front.

6 Ways Mortgage Shoppers Are Saving On Closing Costs

It is not uncommon for buyers to find the perfect home right at the top of the their budget. While it is our job as realtors and lenders to always find the most competitive rates, these clients need our expertise more than most.

If getting into a home is contingent on affordable closing costs, there are things that can be done to make this process less stressful.

Source: 6 Ways Mortgage Shoppers Are Saving On Closing Costs | Mortgage Rates, Mortgage News and Strategy : The Mortgage Reports

Lower Your Closing Cost Bill

Depending on the loan amount and the location of the home, loan applicants can pay anywhere from 3% up to about 6% of their home price, in closing costs. While some costs associated with the location of the property cannot be controlled, other steps can be taken to cut costs incurred by the buyer.

Closing costs can accumulate rather quickly as lenders pay for credit reports, attorney services, title services and more.

Those costs are covered by either the borrower, the seller, the lender, or a combination of the three.

It is important to understand what motivates a lender or a seller to cover these costs, as you strategize with your buyers.

Be Aware of the Other Costs that come with a Mortgage Loan

In addition to standard closing costs, buyers should be made aware of other fees associated with a mortgage loan.

Getting buyers ready to hear terms like prepaid interest, homeowner’s insurance, property taxes, escrow deposit for taxes and insurance, and loan discount points, will help the process not seem so daunting, especially to a first time buyer

What Are a Buyer’s Options?

While most people evaluate loans by rate shopping, that is not always the most effective way to choose a loan.

Buyers should know how to compare lender’s charges, and should understand how to avoid paying too many points on a loan.

When possible, advise buyers to close near the end of the month to help save on prepaid interest.

For some buyers, choosing to buy up the interest rate, and not buy it down with loan discount points, can motivate a lender to pay a part or all the closing costs.  

Finally, it is always an option to ask a motivated seller to help with closing costs.

Understanding the costs associated with a loan is important for all the parties involved, as a good deal for a buyer benefits all of us.

Please schedule a time to talk if you are interested in more ways to qualify your buyers. I look forward to getting your clients into the home of their dreams.

Understanding Closing Costs

Closing Costs for Home Buyers

In addition to the down payment, you’ll also have to pay closing costs — miscellaneous fees charged by those involved with the home sale (such as your lender for processing the loan, the title company for handling the paperwork, a land surveyor, local government offices for recording the deed, etc.).

On average, homebuyers pay closing costs ranging from 2% to 5% of the purchase price. Unfortunately, this is only a ballpark figure, as there are many variables in each individual transaction. Many lenders will require that you apply for a loan prior to receiving a more precise estimate of closing costs; however, some lenders are more transparent with their available options and will do the necessary legwork to provide you a better idea of those costs.

The key factors in determining the closing costs you will pay include the loan program, your credit scores, the escrow and title company, the down payment, and any negotiated seller concessions. Let’s take a closer look at the typical closing costs paid by homebuyers.

What Are Closing Costs?

As mentioned previously, “closing costs” is a collective term for the various fees and charges you’ll encounter when buying a home. Some of these fees come from the lender and others come from third parties that are involved in the transaction, like home appraisers, homeowner associations (HOAs), and title companies.

The types of closing costs you pay will depend on the kind of loan you’re using, as well as other factors.

Typical closing costs include:

  • Fees relating to obtaining a credit report
  • Loan origination and processing fees
  • Home appraisal fees (though more often than not, they are paid in advance)
  • Discount points, which can be used to secure a lower mortgage rate
  • Title search and escrow service fees
  • Title insurance fees, to cover both the lender and the homebuyer
  • Mobile notary fees
  • Pre-paids: escrow deposits to cover first two months’ property taxes and homeowners insurance.
  • Recording fee paid to the city or county for recording the new land records.
  • HOA transfer fees

Again, these are just some of the typical closing costs for homebuyers. Depending on your situation, you might encounter additional costs that are not on this list – and some of these fees might not apply to your situation.

Finalizing Closing Costs

As mentioned previously, closing costs tend to average between 2% and 5% of the purchase price.

So, if you’re buying a house that costs $200,000, your closing costs might fall between $4,000 and $10,000 (on average). That’s a pretty wide range and isn’t something you can really use for planning purposes. That’s where the new Loan Estimate can give a much more detailed breakdown when you actually start the loan process.

Soon after you apply for your home loan, the lender will give you a document known as a Loan Estimate. This standardized, three-page document gives you a lot of important information about your new loan. Page 1 includes your loan amount, mortgage rate, and estimated monthly payments, as well as an estimate of your total closing costs. Page 2 provides an itemized breakdown of the various costs associated with your loan.

Discount Points and Lender Credits

There are other factors that can affect the amount paid at closing. For instance, consider the different scenarios below:

  • Borrower ‘1’ might decide to pay mortgage discount points in exchange for a lower interest rate.
  • Borrower ‘2’ might avoid paying points in order to reduce the upfront costs.
  • Borrower ‘3’ might forego the discount points and opt for a slightly higher rate, in order to get a lender credit to further reduce closing costs.

These choices could result in a difference of several thousand dollars in the amount these buyers pay to close their loans. That’s why it’s best to take the time to sit down with your mortgage lender so they can understand your situation and what’s most important to you, the borrower!

In closing, here’s a great tipask the seller to pay some of the closing costs. If you’re short on cash for the closing costs and can’t roll the closing costs into the mortgage, ask the seller if they’re willing to pay part of the closing costs. It’s not unusual for buyers to ask for this.  Usually the worst that can happen is that they say no.

Disclaimer: Your closing costs could differ from the examples provided above, based on a number of factors – and the views expressed are my own and do not necessarily reflect those of American Financial Network, Inc.

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