Thursday, April 12, 2007 - Article by: Lender411 Member
One of the first things a borrower who is considering a home purchase wants to know is how much it will cost to close on a loan. In general, the amount you will be required to pay depends on your lender, the amount you are borrowing, and the mortgage loan you choose. To learn more, read on for an overview of mortgage closing cost options.
Closing costs, sometimes known as settlement costs, are fees that must be paid to close on a mortgage loan. These fees can be paid by the home buyer or the home seller, and often include expenses associated with the transfer of ownership, as well as additional lender charges.
By law, lenders are required to disclose your estimated closing costs in writing as part of your Good Faith Estimate. You should always look this information over to see what you are being charged and why. If there are suspicious charges or fees that you do not understand, you should question them immediately.
The following chart offers a summary of the mortgage closing costs you can expect to pay on a home purchase loan:
Lender and/or Broker Fees
$50 - $450
$0 - $400
$100 - $1,000
$100 - $1,000
$25 - $795
Third Party Fees
$225 - $450
$150 - $900
$15 - $30
$225 - $450
$20 - 90
$150 - $400
$175 - $875
$150 - $400
$50 - $150
$50 - $1,250
$1,485 - $8,640
As you can see from the chart above, mortgage closing costs average somewhere between $1,485 and $8,640. However, Mortgage closing costs can vary, and depend upon many different factors. Some of the things that influence the amount you will pay include, but are not limited to the:
Other factors like property taxes and insurance can also influence your closing costs. For example, some lenders require that you pay for one year's home insurance in advance. This could mean an additional $300 to $2,500 out of pocket, depending on your insurance provider and your level of insurance coverage.
You have four basic mortgage closing cost options on a home purchase loan. You can ask for a loan with 'no closing costs', request that the home seller pay the closing costs for you, request seller concessions, or pay the closing costs yourself.
No closing cost loans are becoming very popular, especially among first time homebuyers who are strapped for cash. These loans allow borrowers to close on a loan without paying any fees upfront-the key word being upfront.
While it is true that borrowers can get a loan without paying closing costs upfront, in most cases the borrower will eventually pay. Some lenders roll the closing costs into the loan. Others make up the difference by charging a higher interest rate.
This doesn't mean that a no closing cost loan is a terrible option; it simply means that you need to carefully evaluate your ability to pay the charges upfront versus paying them later on. You will also want to take time to crunch the numbers to determine how much each option will cost you.
Getting the seller to pay the closing costs on a home purchase loan is the best case scenario for any borrower. Money out of the seller's pocket means less out of the buyer's pocket. The cash that is saved could be put towards the down payment, used to buy down the interest rate, or finance home improvements.
If you are interested in getting the seller to pay the closing costs on your home purchase loan, you should get an estimate of what these costs will be from the lender, and then bring up the subject during initial negotiations. If you are unable to get the seller to come down on the price of the home, you may be able to get them to agree to pay closing costs.
If a borrower is unable to get the seller to pay the closing costs, the borrower can ask for seller concessions. With this closing cost option, the seller does not pay any money, but does offer concessions on the purchase price.
For example, if the home is being purchased for $200,000, the borrower can ask the seller to indicate on the home purchase contract that the purchase price is actually $206,000. The seller does not get any more than the $200,000, but the borrower will be able to finance the additional $6,000 and use it towards closing costs.
This closing cost option is an alternative to a no closing cost loan, and may cover all of the required closing costs. It should be noted, however, that many lenders limit seller concessions to 3 percent of the purchase price.
The final option is to simply pay the closing costs yourself. If you decide to go this route, you should shop around to make sure you are getting a fair deal. You may also want to try negotiating with the lender to get some of the fees waived.
If you don't have the money you need to pay all of the closing costs, you could borrow against other property, take out a personal loan, or borrow from friends and family. Your lender may also be able to suggest other avenues that can be explored to get the cash you need to close on your mortgage loan.
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