It’s well known that you need a big chunk of cash to pay the down payment on the Southern Maryland house you want to buy. You may even know about the earnest money deposit, which is a smaller chunk of money that you probable learned about from your real estate agent. And somewhere along the line, the phrase “closing costs” has probably been mentioned, but when you finally see how much you need to close your loan, you might get a bit of a shock.
As a general rule, closing costs are 2 to 5 percent of the amount of the loan, so if you’re using an FHA-backed loan, your closing costs may be comparable to your down payment. Let’s say you’re getting a loan for $175,000, and you qualify for an FHA 5 percent down payment loan. You’ll be required to pay $8,750 for a down payment and perhaps that much again for closing costs. Did anyone along the way tell you it may cost you $17,500 in cash to buy a house?
Many first-time Southern Maryland home buyers spend years saving for the down payment, while closing costs come as a total surprise.
What are closing costs?
When you pay your closing costs, you’re paying for all the services you received during the transaction. The seller also has to pay at closing; their costs include the real estate broker’s services. Who pays for what at closing varies across the county, but some items are standard everywhere. Buyers commonly pay these fees:
- A fee for pulling your credit report
- Down payment
- Escrow impounds (money kept in escrow to pay for your homeowners insurance and property taxes)
- FHA Up-Front Mortgage Insurance Premium
- Home inspection (if not paid at the time of service)
- Loan origination fee
- Notary fees
- Origination fee (this is the lender’s fee for granting you the loan)
- Points, or loan discount fees, if you’ve decided to purchase them
- Prepaid interest
- Private mortgage insurance premium
- Recording the deed
- Title insurance
Lender disclosure requirements when it comes to closing costs
Lenders are required by law to disclose an estimate of loan costs within three days of the submission of a competed loan application. And, three days before closing, the lender will supply the borrower with a Closing Disclosure. The fees listed on the loan estimate may increase or decrease, but the Closing Disclosure is the final word.
Be sure to compare the two documents and look for changes. If you have questions or concers, call the lender right away.
How to pay less at closing
Some Southern Maryland sellers are open to paying some or all of the buyer’s closing posts. If you’re cash crunched, let your agent know so that he or she can negotiate on your behalf on the closing costs. If you’re buying using the Veteran’s Administration (VA) mortgage, there are some closing costs that you’re not allowed to pay. Some of these include:
- Attorney fee
- Tax Service
There is no cap on how much of the closing costs a seller is allowed to pay. Whether the seller pays them or the lenders offers a credit to help pay for them, this is another money-saving feature of the VA loan.
The Consumer Financial Protection Bureau’s website has a lot of information about the closing process, including a copy of the Closing Disclosure Form. You’ll also find an explanation of how to compare that form to your estimate and a closing checklist.
Mechanicsville MD Homes for Sale and Real Estate Services in Southern Maryland. You now have a search engine to help you with your Southern Maryland home search! And I’m ready to provide you with a custom home valuation if you’re considering selling your home. Let’s connect to discuss how I can help you. Contact Kimberly Bean at 301-440-1309
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