For normal citizens, it takes a long time to save for a down payment on a house. Having a simple gourmet coffee for the lukewarm in-office drip is not that simple. As you hope to set aside a few dollars a day will magically compound into enough money to buy our piece of the American Dream.
Just when we think that we’ve saved enough funds to make even the minimum 3% down payment, we’re struck with another round of expenses: closing costs.
This typically amount to 3 to 6 percent of the purchase price. Taxes causes the broad range of percentage. Buying a house means paying taxes and sometimes transfer fees upfront, at the closing. The other costs like settlement costs will go to your attorney, title insurance company, and lender. The biggest beneficiary here is the government – city, county, and state.
According to Bankrate.com, closing costs increased 6% last year and now average $2,539 on a $200K loan, originator fees (i.e. lender commissions) also increased 9% to $1,877, while appraisal fees rose 1% to $662. Although Bankrate.com did not factor real estate taxes and transfer fees into its analysis, which accounts for the discrepancy between its estimate and the more general 3 to 6 percent estimate.
Everyone has something to do at the closing. Every real estate transaction has their fair share of the closing costs. Meaning the title company prints multiple checks to pay the brokers, the surveyor, the attorneys, the courier, and anyone else who can stake a claim against the property or its owner, even the decorators and contractors during the staging of the property gets a payday at closing.
Closing costs may vary by location which makes it more confusing. Added fees, sometimes called transfer taxes or impact fees, can be implemented by any state, city, and county that has the authority to do so. It’s a money grab.
According to Bankrate.com, Texas has the highest closing costs in the country while Nevada has the lowest.
Don’t you worry because some closing costs are negotiable: attorney fees, commission rates, recording costs, and messenger fees. You can check out your lender’s good-faith estimate for an itemized list of fees. Then use your GFE to comparison shop with other lenders. GFE or good faith estimate, is a form that lists basic information about the terms of a mortgage loan for which you’ve applied. The GFE includes the estimated costs for the mortgage loan. It provides you with basic information about the loan, which helps you compare offers, understand the real cost of the loan, and make an informed decision about choosing a loan. The lender must provide you with a GFE within three business days of receiving your application or other required information. You can be charged a credit report fee before receiving a GFE. But, you can’t be charged any other fees until you get the GFE and indicate that you want to proceed with the mortgage loan.
But don’t despair, there are ways to avoid the added expenses:
Look for a loyalty program.
You can use the bank to finance your purchase. Some banks offer customers help with their closing costs. For example, Bank of America offers to reduce origination fees for preferred reward members. It’s like the bank’s way of offering a reward for being a loyal customer.
Close at the end of the month.
Reduce the closing cost when you schedule your closing at the end of the month. Let’s say you close at the beginning of the month; you may still need to pay the per diem interest from the 5th to the 30th. But if you close on the 29th, you will just have to pay for only one day of interest.
Get the seller to pay.
It’s a good way to seal the deal – and a tax-deductible expense for the seller. Most loans allow sellers to contribute up to 6 percent of the sale price to the buyer as a closing cost credit. But don’t expect this to happen much in hot markets where inventory is limited.
Wrap the closing costs into the loan.
It’s a way to get into the house with less cash up front, although lenders charge more for this. You need this if you really don’t have the cash.
Join the army.
Being a military member, they get to have closing-cost benefits that are often overlooked. Service members and veterans may qualify for funds to help them purchase a home. Take not that these benefits are not limited to the VA loan. Better do the necessary research to make sure you get everything you are entitled to.
Join a union.
AFL-CIO members get closing cost discounts and rebates of up to $2,500 on real estate transactions when they get a mortgage through Chase. But only if they live in New York.
Source: Realtor.com, consumerfinance.gov
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