What are closing costs?
lenders closing costs are transaction costs charges in addition to the amount that you pay for a property.
They are charges on top of the purchase price.
For example, if you buy a home for $250,000, your purchase price typically will consist of your down payment and your new mortgage.
However, added to this will be an additional amount for closing costs. Closing costs typically run 3 to 7 percent of the purchase price for the buyer, 7 to 10 percent for the seller.
(Both buyer and seller have their own, separate closing costs.)
Closing costs are normally paid in cash, so it’s important that you have enough money to cover both your down payment and your closing costs.
Are closing costs fair and reasonable?
Some lenders closing costs are, and some aren’t.
Afew closing costs are regulated by the government, and by and large, most lenders and others who set closing costs charge fair and reasonable fees.
One serious problem, however, has been garbage fees, charges that are either higher than actual costs or charges that you, the buyer, should not have to pay.
Asecond serious problem with some lenders has been lowballing, where actual costs at closing have been higher by up to thousands of dollars than estimates given at the time you applied for the mortgage.
Who will tell me what my closing costs are for the purchase I am presently making?
It is difficult to know exactly what your closing costs will be until the close of escrow.
However, when you make your offer, a good real estate agent should be able to give you a fairly accurate estimate.
(Some very good agents can come within $50 of actual costs!)
When you apply for a mortgage, your lender will also give you a Real Estate Settlement Procedures Act (RESPA) fair estimate of your potential costs.
However, in too many cases estimates have been off by as much as thousands of dollars, causing buyer-borrowers not to rely on them.
Your title insurance-escrow company will also give you an estimate of your costs at the time you open escrow.
However, again, these estimates may be wildly off.
At least 1 day before the deal closes, you’ll be given a HUD-1 form that details exactly what all of your closing costs are.
Of course, by then, it’s usually too late to do anything about them.
Why do I have to pay closing expenses?
Buying a house is unlike most other transactions.
When you buy furniture or even a car, you are usually dealing only with the seller. Therefore, all the money you pay goes directly to the seller. (With a car, you do have some closing costs such as registration and license fees that you pay to the government.)
When you buy a home, however, while some of your purchase price does usually go to the seller, there are many other parties who contribute to making the deal.
And in order to get their services, they must be paid.
They include the following :
- Title company
- Escrow company
- Real estate agent
- Home inspector
- Termite/pest inspector
Each of these other “entities” may contribute something to making your deal possible.
And because of that, they demand, and are entitled to, a fee.
Their fees represent your closing costs.
Can I get out of paying closing expenses?
Not usually, but sometimes.
There are really only two ways to get out of paying closing costs.
The first is to negotiate them down with whoever is charging them.
It may be possible to have them reduced, or sometimes eliminated.
The other alternative is to have someone else pay your closing costs for you.
Sometimes a builder, for example, will pay a buyer’s closing costs in order to induce that buyer to make a purchase.
In other cases, a seller may be willing to pay your closing costs.
Note : Do not confuse having your closing costs financed (added into the mortgage) with not paying them. When they are financed, you may not put out the cash at the closing, but you will pay for the costs over the course of the loan.
Can the seller pay my closing expenses?
In theory almost anyone can pay your closing costs for you.
However, the most likely person to do this is the seller.
When you negotiate for the purchase of the property, you can bargain not only for price and terms but for closing costs as well.
In a buyer’s market, where there are many properties for sale and few takers, sellers will often agree to pay at least a portion of the buyer’s closing costs in order to make the sale.
This is particularly helpful to many cashstrapped buyers because it means they need to put less cash into the transaction.
(In a seller’s market the seller may want you, the buyer, to pay his or her closing costs!)
What are recurring and nonrecurring closing costs?
lenders closing costs
Closing costs that recur are such things as interest on your mortgage, taxes, and insurance payments.
They are ongoing, payable monthly or annually.
Nonrecurring closing costs (NRCC) are one-time charges.
These include points on your mortgage, title insurance, and escrow fees.
Will lenders allow the seller to pay my closing costs?
lenders closing costs can be strict about not allowing the seller to pay all your costs ( lenders closing costs ).
Usually they will allow it if the costs are nonrecurring or one-time only charges.
On the other hand, they may refuse to give you a needed mortgage if the seller is paying your recurring costs.
The thinking here is that if you can’t handle recurring costs, ( lenders closing costs ) you probably can’t afford to take out the mortgage.