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- What are closing costs and how much are they?
- Do I need a down payment?
What are Closing Costs and how much are they?
Closing costs are the fees required to set up your loan and to legally process your home purchase.
These include the costs to "originate" your loan and process your loan file, discount points (if any) to "buy down" your interest rate, wholesale lender fees to underwrite your loan, title company fees, mortgage insurance (if any), homeowner's insurance, property tax and insurance for escrow accounts, homeowners association dues (if any), pre-paid interest, costs to appraise the home's value, a survey (if required), county fees to record the property deed, and other miscellaneous fees.
These fees often total about $8,000, but exact fees differ on each purchase and loan.
Since a 100% loan doesn't finance closing costs (see 100% loans fact and fiction under Getting a home loan), it is important to have a qualified Loan Officer and Buyer Agent working together to structure the purchase and the loan to minimize the cash required to pay closing costs.
SmartHomeBuyersDFW.Com affiliated Buyer Agents and Loan Officers working together for you as a "team" can provide you a true move-in cost typically of $1,500.00 or less, depending on the exact home you choose. Loans are subject to lender approval.
NOTE: Move-in costs do not included moving expenses, utility deposits, etc. They included the costs paid at closing specifically for buying and financing your home.
Closing costs on new homes are typically about $2,000 higher, because builders are reluctant to pay closing costs that sellers of existing homes regularly pay.
However, on spec homes (new homes completed but still unsold), builders will sometimes pay normal closing costs like sellers of existing homes.
Builders have an incentive to reduce their price and pay part of your closing costs to sell their EXISTING homes. Every day that home sits there unsold, the builder is loosing more and more money in interest costs!
Do I need a Down Payment?
The down payment is different from closing costs. It is equity that you have in the home.
You may choose to make a down payment or the lender may require it for your type of loan.
Some people feel more comfortable making a down payment and having immediate equity in the property. That's fine. But it usually is NOT necessary.
If it takes you a year to save up a $5,000 down payment, home prices have probably gone up MORE than the $5,000 you've saved in that same year!
That would mean you've waited for nothing! And you would end up with a HIGHER monthly payment, even AFTER having put down $5,000!
However, remember that if you put no money down (and have no equity), should you decide to sell your home in the first years after buying it, you may have to "bring cash to the closing table" to pay closing costs when selling the home.
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