Everyone knows that, right?? But what are those costs , and how do they affect your purchasing power? Basically you can borrow the money needed to cover the price of the home itself. But closing or settlement costs (which includes the mortgage down payment) are usually expected to be paid in cash from the buyer's currently available funds, and they can be quite substantial. In general, a lender wants proof (as does any home seller) that the buyer has sufficient available funds to pay these fees.
Remember...
...While your lender may have issued a pre-approval, the full scale committment will depend on proof,
by the buyer, that settlement funds are available. Here's what you need to know:
The FAQs.....
1. How much down payment will I need?
Your down payment can be from 0% to the full sale price of the home. In today's mortgage market,
lenders can be found who will issue a no-money down mortgage. Most typically, lenders expect
between 5 and 15% down. Typical today are FHA-backed loans. In these, the buyer must contribute 3.5% of the home's price, but can ask for up to 6% of the price as Seller Assist.
2. What other large costs can a buyer expect??
Well, there's Title Search/ Insurance, a state regulated fee based on the home price: figure about
$1500 on a $200,000 home. Most lenders will require you to pay the 1st year of taxes at settlement,
placing the money into an escrow account. So if the home's taxes are $2400/year, you'll need that
amount at settlement. Finally, the state and local governments levy a Transfer Tax. In most areas it
is 2% of the homes price (amounts do vary!), and the amount is usually split, with the buyer & seller
each paying 1%.
3. Whew! What else can a buyer expect:
Well, the lender will charge for the application, appraisals, and other fees (figure from less then
$1000, up) . You'll want to have Home Inspections performed- $400 for the home inspection, $100
each for pests & Radon, and perhaps $200+ for mold & mildew. There will be some admin fees
(figure $300 - $500).
4. What if I don't have enough to cover settlement costs:
Are there other places I can get the money?
Yes, there are several. Starting with your lender, under ideal conditions they may lend as much as 100% of the home's price. Or there are several very helpful 1st time buyer programs
that offer assistance in closing costs, even down payments. And finally, a buyer can ask for something called "Seller's Assist", in which the buyer asks the seller to contribute to the settlement costs. Typically, lenders put a cap of 3% of the selling price as a limit for assist. But with an FHA-backed loan, that limit rises to 6%.
For any or all of these, contact HomeFAQs for more information
