CLOSING COSTS? WHAT THE HECK?

ruggedgrp.com

What?! i need more money than just for my down payment? I hear that frequently. Yes. Yes you do. The money you need to purchase a home is for two different things: down payment and closing costs. Closing costs are the fees that you are required to pay the lender for services that are needed to close the transaction. What services you might ask. Here are the basic items that constitute closing costs:

Underwriting and processing - lender required

Appraisal and credit report - lender required

Tax transcript fees -lender required

Title Fees-which include a title exam, closing fee, and issuance of an owner's policy -required to be sure the title can be passed free and clear to you, as well as insure you in the case of a claim against the title in the future.

Recording Fees-required by the county of the property and the lender

There is also a subset of costs known as pre-paids. 12 months of home owner's insurance paid in full, interest on the loan to the end of the month, and a cushion for taxes and insurance known as your "escrow account" so that there will be enough money to pay these items a year from now when they come due.

These are the basic fees. Lending fees normally run $1900-$2000. The pre-paids depend totally on the cost of your taxes and home owner's insurance. Title fees are minimally going to run in the $500-$700 range depending on the size of the loan.

In addition there can be others such as termite inspection fees, well and septic test fees and if you choose to "buy down" your interest rate to a lower rate there is a cost.

The good news is you can often ask the seller to pay part or all of the closing costs. Up to 3% of the purchase price on conventional mortgages or up to 6% on government loans. In addition on VA loans there are some costs - $1000-$1200 that the veteran is not allowed to pay, so the seller normally does pay them or in some cases the lender does.

And there are two 100% loan types out there VA and USDA as well as the Indiana Housing down payment assistance which do not require a down payment, so monies saved can go for closing costs alone, or partial closing costs with seller concessions.

While it is possible to obtain mortgage financing without much out of pocket expense, I think it would not be entirely truthful to give someone the idea that they can get into a home with absolutely no out of pocket expense. Between inspections and earnest money I would plan for a minimum of $1000 out of pocket if you qualify for one of the no money down programs.