Considering taking the leap to homeownership? If you’re a first-time buyer, you should know that closing costs often can be a barrier to the home-purchasing process if you haven’t done your research. Here are some tips to help you understand what these fees are, with the goal of putting you in the prime position to gain your dream home.
1. Closing costs and down payments are not the same
A down payment is a percentage of cash you give your mortgage lender as an advance payment on your mortgage. Generally, 20 percent is considered the standard for home buying. Although this money usually is paid when you sign off on the loan paperwork, it’s not considered a closing cost. Closing costs are accrued separate from a down payment and include fees for items such as the loan origination or application, title, appraisal, postage and attorney. Some of these fees are paid to the bank, while others go to third-parties such as the appraiser or the company that provides insurance coverage for the home’s title.
2. Closing costs are based on what you borrow
Although individual closing costs can vary based on your mortgage lender, the baseline for calculating them is the same. Typically, they range from 2 percent to 5 percent of a home’s purchase price. That means for every $100,000 you pay for a home, you will pay $2,000 to $5,000 in closing costs. Coming up with a rough idea of what you’ll have to pay for closing costs before you get too far along in the mortgage process can give you an idea of what you can afford. If you already have your eye on a property, try using a closing cost calculator to estimate how much you’ll owe.
3. You might be able to get the seller to pay
Buyers usually are responsible for handling closing costs. Depending on the type of loan you’re getting and the specifics of the housing market, however, you might be able to get the seller to shoulder some—or all—of the expense. They can either pay out-of-pocket or cover the cost through a seller’s concession. Asking for a concession means you’ll basically agree to add the closing costs to the sale price. Once you close on the home, the seller will return the difference. If you rely on the concession to cover other costs, you’re using money you could potentially put toward a down payment or monthly mortgage payment. Talk to your local PERL lender to see how you can take advantage of seller concessions at closing.
4. You have the right to know what the costs are
Before the actual closing, your lender should give you a loan estimate that details what your anticipated costs will be. Certain aspects of the estimate may change, while others such as the origination fee and the loan’s interest rate are fixed once the your local PERL lender puts them in writing. When you receive your loan estimate, it’s a good idea to go through every fee to make sure you’re not being charged an unreasonable amount. If you spot something that seems inflated or you don’t understand what a particular fee is for, always ask the lender for a more complete explanation. You may even be able to negotiate down the cost of certain charges, such as the application fee.
As always, please remember that PERL will be happy to help with any of your lending needs. Contact your PERL Mortgage loan officer today!