How To Get Closing Costs Paid For – As a first-time home buyer, it’s not uncommon to approach the cost of buying a new home thinking “the calculator shows my mortgage payment will only be X dollars, which is about the same as my rent, so maybe I can afford a house that cost X dollars.” Buying your first home is very exciting, and although it can be scary and expensive, your goal of home ownership can be possible with a bit of planning and knowledge. Knowing your monthly income and personal expenses is a good start! But as the informants say … “oh, but there is more!”
What first-time home buyers often overlook is the fact that buying a home costs more than the price of the home, and you will need funds available up front to get through the home buying process. To get a true picture of the amount of money needed to buy a home (and then own your home), consider the costs listed below.
- 1 How To Get Closing Costs Paid For
- 2 Who Pays The Closing Costs — Buyer Or Seller?
- 3 Closing Costs In Orange County, Ca
How To Get Closing Costs Paid For
During the process of 1) making an offer on a new home, 2) getting your offer accepted, and 3) taking possession of that new home, you will need funds available to cover expenses including earnest money, a down payment, an inspection the house, and closing costs.
Earnest Money Vs. Down Payment: What’s The Difference?
Earnest money is essentially a deposit you put on a potential purchase when you submit an offer. It shows the seller that you are a serious buyer. If the offer is accepted, the earnest money can be deducted from your payment. Depending on the market, a typical amount is 1%-3% of the price of the house.
Typically, 20% of the home’s value is a good target. However, a smaller payment is possible, which allows borrowers to buy a house earlier if they did not have enough time to save as much. However, most lenders will require borrowers to carry private mortgage insurance (PMI) when their deposit is less than 20%. PMI is a risk management product that protects lenders from losses if a borrower defaults on their mortgage payments. Borrowers pay their PMI monthly in addition to their mortgage payments.
To avoid unexpected repairs and expenses after moving into your new home, potential buyers should request that any offer they make on a new home be contingent on a home inspection. Hire a home inspector to check the entire home (foundation, roof, electrical, plumbing, etc.) and make notes of any potential problems. You can always ask the seller to fix these problems, or lower the asking price, before the sale ends.
An appraisal is an estimate of a home’s property value. Your mortgage lender requires an appraisal because they will only approve a loan when a property is appraised for the full sale price or more than the sale price. You can’t get a $200,000 loan for a property that’s only appraised at $150,000. Although the lender chooses the appraisal company, the buyer pays the fee.
Budgeting For Closing Costs
Closing costs include all the various fees you pay your lender and other parties involved in closing on your new home. They include an interest payment, insurance costs, various lender fees, title and attorney fees, an escrow account payment, and possibly realtor commissions. All-in-all, this could be from 2-5% of the purchase price. There is the potential for a buyer to negotiate that the closing price, or part of it, must be paid by the seller.
Your mortgage loan is divided into principle and interest amount. Together they make up your total mortgage payment.
Purchase price – less down payment = $135,000 30 year mortgage at 4.125% = approx. $654.28 per month
As mentioned earlier, if your payment was less than 20%, you will have to pay for Private Mortgage Insurance. This is equal to approximately 1% of your outstanding loan amount and is adjusted on an annual basis.
Who Pays The Closing Costs — Buyer Or Seller?
These usually include both real estate and school taxes and vary greatly from area to area. Your tax amount is based on an assessment of your property, which is different from your assessed value. Your taxes will be divided into 12 equal payments and will be included in the payment to your lender each month. Your lender will set up an escrow account to hold your tax payments and pay your taxes on your behalf into that escrow account.
If you finance your home with a mortgage, your lender will require you to carry homeowner’s insurance. Homeowner’s insurance will cover you and protect your home in the event of a fire, natural disaster or other insured event. Homeowners insurance will also be paid on your behalf into your escrow account.
Additionally, some residential areas require homeowners to pay Home Owners Association (HOA) fees on a monthly basis. Homes purchased in a defined area (typically part of a housing development) automatically belong to the Association. The fees that each homeowner pays go toward the cost of common area maintenance, lawn service, snow removal, clubhouse/pool privileges, and more. HOA fees vary widely from area to area and are required if you are buying in defined developments.
It’s important to understand the complete process before you buy and what to expect after you buy. This simple infographic shows a sample of the REAL cost of buying a home.
How Much Can The Seller Pay Toward My Closing Costs?
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The opinions, views, and ideas expressed in this blog are just that, and should not be construed as financial or legal advice. The writers of these blogs are educated on the topics they write about, but are not attorneys, licensed financial advisors, or registered investment advisors. The information presented in each blog has been deemed accurate at the time of publication for each individual student post. Diamond Credit Union is not responsible for any actions a person may take as a result of information read in one of our blogs. You can have the seller pay your closing costs or at least a portion of your closing costs. And this is really useful because many times people save up for the payment for their house, but they often forget that they have closing costs.
These are things like your title appraisal, and title insurance. You also have things like recording fees in your county taxes and homeowner’s insurance as well.
So we can actually negotiate for the seller to pay a portion of this, and I want to show you how it works because there are some limitations you need to know. Then I will show you the math and kind of a hidden trick that you can use that many people are not aware of.
Closing Costs In Orange County, Ca
So first, real quick for this is less cash out of your pocket. For many people, as their home has increased in value, the down payment has also increased and it has made it much more difficult to save the money you need to buy your home.
The disadvantage of this is that it makes you offer less attractive. Now this is not too big of a problem in what is called a buyer’s market, and we are seeing the market now transition from being a really strong seller’s market to being more neutral in buyer’s territory.
A buyer’s market is where the buyers are in control. You will be able to come up with different types of loans that the seller would normally be hesitant about or different offers that are more in your favor. So things like asking for credit from the seller.
Let’s say we have a purchase price. We’re looking at a house that’s $425,000. The down payment on that is, let’s say $12,750. Okay? Now, for closing costs, I will put in an estimate of 6, 500. This will change depending on where you are.
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That’s why you really need to get a quote from a loan officer, and you can do that from us. You can go to Win the House You Love for a consultation and look at all your numbers.
Now, what can we do then because we are on the line for these two numbers, 12,750 and $6,500. That would be the money we have to pay up front to buy this house. What we can do though, is we can ask the seller, if you can take 1.5% of the purchase price and give that back to us as seller credit. So in this case, it would be $ 6, 375 that we could use towards our closing. So what we do is we take $12,750 plus $6,500 minus $6,375, our seller’s credit, and that gives us a total that should be at closing of $12,875. That saves us, about $6,300 out. in. pocket
So really quickly, let’s cover closing costs. I think this confuses a lot of people because people are used to hearing about the payment, right? Maybe 3% down on a conventional loan is the minimum. That’s what we did in this example right
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