Closing Costs

When you purchase a home, your down payment is not the only thing that you will need. In exchange for loan services, closing costs are the expenses you pay your lender.

Many homebuyers are unaware of the amount they will need to pay in closing expenses. There are many ways to reduce the amount you pay.

It can be difficult to understand closing costs. This section will give you a general overview of closing costs, so you can make an informed decision about whether to close your loan. You'll also find some tips to help you reduce the amount you pay.

What are Closing Costs?

These are the processing fees that you pay to your lender for closing costs. These fees are charged by lenders to create your loan. These fees cover your home appraisal and searches for your home's title. The type of loan you get and where you live will determine the closing costs.

Your closing costs are paid when you attend the closing meeting for most home loan loans. Your lender will accept your down payment funds as well as any closing costs.

 

What Are The Closing Costs Amount

 

Closing costs may amount to 3% -6% of the property's price. If you get a mortgage for $200,000, closing costs can be as high as $6,000 to $12,000.

Your down payment is not included in closing costs. You may be able to negotiate with the seller to cover some or all of your closing costs when you buy a home.

Who Pays The Closing Costs?

Buyers and sellers both pay closing costs. The buyer typically pays the majority of these costs. You can negotiate with the seller to cover closing costs. These are known as seller concessions. If you are worried about not being able to raise the funds you need, seller concessions may be a great option. Limits apply to the amount sellers can offer towards closing costs. Sellers cannot contribute more than a percentage of the mortgage value. This varies depending on the loan type, occupancy, and down payment.

 

Conventional Loans

 

Below is a breakdown of seller concessions limits for conventional loans . The percentage is either the purchase price or the appraised value.

Primary Residence

  • Down payments of 25% or more: 9%

  • Down payments of 10% – 24.99% 6%

  • Down payments less than 10%: 3%

Second Homes

  • Down payments of 25% or more: 9%

  • Down payments of 10% – 24.99%: 6%

Maximum seller concessions on down payments for investment properties are 2%

FHA Loans

 

FHA loans have a simpler application process and the contribution limit of 6% is based on the lower of the appraised price and the purchase price.

 

VA Loans

 

VA loan seller concessions have a few different rules depending on the application. You can use up to 4% of either the appraised or purchase price to fund escrow accounts, prepaid taxes, homeowners insurance, and any VA funding fee.

The seller can contribute an unlimited amount to funds for things such as discount points, origination fees, survey, appraisal, and credit report fees.

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What Are The Closing Costs For A Buyer?

Closing costs will vary from one buyer to the next. Depending on the circumstances, there may be additional costs that are required by lenders or government. The cost of the loan will vary depending on your location, which lender you use and what type you choose.

Your Closing Disclosure will be given to you at least three days before your closing meeting. This document will detail all closing costs you have to pay and the amount you owe. These are some of the common closing costs that you may see in your disclosure.

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What Are The Closing Costs For A Seller?

Closing costs are not paid only by buyers. To close the loan, you will need to contribute some cash as the seller. Let's look at the most common closing costs that sellers have to pay in order to close a house sale.

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How to Reduce Closing Prices

Closing costs can change without notice. These are some tips to help you limit the amount you pay at closing.

Shop Around For Lenders

You, the buyer, have the option to choose the mortgage company that you would like to work with. Do not be afraid to shop around for lenders. Ask for information from several loan providers to find out what fees they charge. For lower closing costs, choose a lender with low fees and competitive rates of interest.

Ask The Seller To Contribute

Your seller may be willing to pay your closing costs if you are in a buyer's area. It's a win-win for both you and your seller. Your seller will get a quicker sale and a lower closing cost. You should understand the loan type of your seller and ask for a concession.

Final Reflections On Closing Costs

Closing costs refer to the processing fees that you pay your lender when your loan is closed. The closing costs for a mortgage loan typically amount to 3% - 6 percent of the total loan amount. Common closing costs include appraisal fees, attorney's fees, and inspection fees.

The type of loan you have and the value of your home, as well as your state's laws, will determine the closing costs that you will pay. Depending on the terms of the sale agreement, sellers may need to cover closing costs.

Negotiating with your lender may help you save money on closing costs. Your seller may be willing to pay a portion of your closing costs or to take out a loan with no closing cost. You should also review all the documents you need to close.

 
 

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