Since you’ve saved up enough money for a down payment, here’s how to get your closing expenses covered by someone other than yourself.
One of the tough challenges for first-time homebuyers is earning the funds for a down payment and closing expenses. This article will assist you in purchasing your first property with the minimal possible amount of your own money.
What Are Closing Costs?
Qualifying for a mortgage loan to buy a home means coming up with the money for a down payment and closing costs.
The type of financing you choose to purchase your house determines the minimum down payment.
Requirements for a Minimum Down Payment
- Conventional Community Mortgages need a 3% down payment.
- Conventional Standard Mortgages require a 5% down payment.
- FHA Minimum Down Payment for a Government-Insured Mortgage is 3.5 percent.
Aside from the required down payment, there are other expenditures connected with purchasing a property. These are the closing fees on your home. Closing costs include lender-related fees and settlement service fees.
Closing Costs Associated with Lenders
Origination Points – fees charged by lenders to offset their expenses. Origination fees are uncommon, and you should definitely avoid any lender who charges them. However, if you pay origination fees, you may be able to acquire a cheaper interest rate in some situations.
Discount points – prepaying interest charges might result in a cheaper interest rate over the loan’s term. This is sometimes referred to as “buying down” interest rates.
Appraisal Fee – typically, you are responsible for paying for an examination to determine the worth of the house you are purchasing. In most scenarios, the appraisal will be paid for with a credit card and is not included in the final closing costs. However, in other circumstances, the lender may pay for the appraisal upfront, and the charge will appear as a closing cost on the final statement.
Settlement Services — depending on where you are in the country, you may use a title and escrow company or a real estate attorney. Settlement services may include notary and recording costs.
Prepaid Finance Charges — unlike closing charges, prepaid fees are ongoing payments all through the life of your mortgage. Interim interest and the funding of your impound account – are two examples of prepaid expenses.
Transfer Taxes – transfer taxes will differ based on whether the property is located (in a city, county, or state).
Some closing expenses are also known as recurring and non-recurring closing ones. The distinction is simply whether such a cost is a one-time payment as a result of this purchase transaction or ongoing, such as interim interest and escrow account financing.
Who can pay for what?
There are restrictions on who can make down payments and closing fees when using traditional financings such as a Conventional, FHA, VA, or USDA loan.
Down payment options are often considerably stricter than what is allowed when paying closing costs.
Who can pay Down Payment?
- You may pay with your own money.
- Make use of a family member’s gift money.
- A source of down payment that the lending program has approved
- Closing costs, on the other hand, can be covered by the transaction’s other parties.
Let’s look at the most prevalent alternatives of paying closing fees out of your own money.
Lender Credit Covers Closing Costs
Lender credit is often acquired when you agree to accept a higher interest rate. Taking a higher interest rate basically has the reverse effect of paying discount points.
The advantage of getting a lender credit at a higher interest rate is that it is not a fixed expense. You may need a minimal sum, which will result in a bit of a rise in your interest rate. In addition, you may have to fund all of your closing fees, which may require a more significant rate rise.
Most of the time, you are simply bridging a gap in coming up with the last closing fees to get to closing. However, this is a standard option when you have different sources of closing costs but not enough to cover everything.
Closing Costs Covered by Seller Credit
It would not be unusual for the seller of the home that you are acquiring to offer to pay for part or all of your closing costs. When this happens, the seller will give a percentage of their home’s equity as a credit towards your closing expenses.
The seller does not give you cash or a check; the credit is subtracted from the revenues of the transaction.
Always explore the possibility of requesting a seller credit with your real estate agent. A seller’s market typically makes things difficult since there are numerous buyers and much more competition for the available properties for sale.
Buyer Assistance Can Help You Pay Closing Costs
Many states, counties, and even cities have first-time home buyer aid programs.
While the idea of receiving buyer assistance to cover your closing fees is appealing, the reality is not. Buyer assistance programs are pretty expensive, and they sometimes come with hidden expenses and strings attached that might come back to harm you afterward.
Working with a Mortgage Professional
Choosing the best mortgage based on your qualifications requires working with a professional loan officer who is familiar with all of the possibilities accessible to you.
Note: Not all mortgage companies are created equally.
Big box lenders who advertise on television, radio, and the internet frequently target a highly restricted set of qualifying requirements.
These well-known lenders spend millions of dollars on marketing and advertising just to dump you into a call center and pass you over to an incompetent customer care telemarketing.
Prepare Yourself for Success
Before shopping for a property, make sure you have all of your financial ducks in order. This entails collaborating with a mortgage specialist.
Once you’ve found a trustworthy loan officer, ask for a referral to a reputable local real estate agent. Even though the loan officer is not from the town in which you are purchasing, they will be able to identify an agent that meets the standards you expect.
Are you unsure where to go for a reputable loan officer? Then, you’ve come to the correct location!
If you have any queries regarding this topic, call us at +1 (818) 309-2999