They are the expenses associated with the transaction of buying a home. Some closing costs are: loan fees, title fees, survey, appraisal, attorney fees, couriers, transaction fees, etc. Taxes and homeowners insurance are paid at closing, and are loosely referred to as “closing costs” although the proper term is “pre-paid expenses”. These costs amount to several thousand dollars, depending on the price of the home. Both Seller and Buyer have closing costs.
How are closing costs paid?
The Seller usually pays for Seller closing costs (including commissions) from the money received from the Buyer’ s lender. The Buyer usually pays for Buyer closing costs by bringing a casher’s check for the closing cost (and down payment). However, the LampLighterOne Realtors often add Buyer closing costs to the sales price of the home. The bad news: you pay more monthly. The good news: you pay a LOT less cash at closing.
What is a down payment?
Down Payment is the percentage of the home’ s sale price that the Buyer is paying upfront. Banks require Buyers to pay a portion of the cost so that the Buyer has money invested in the home. A bigger down payment can mean a lower interest rate. FHA loans currently require the least down payment, which is calculated at 3.5% of the sales price of the home.
How does “rolling in” closing costs work?
You want to buy a home for $120,000 using FHA. With LL1 you have 2 Options:
Option A*: You pay $120,000 for the house. You pay closing costs and down payment in cash at closing. Your monthly payment (4.5% interest), is $608.21 principal and interest. You would pay $5700 in closing costs, and $4200 in down payment, a total of $9900. Ouch!
Option B*: You pay $125,800 for the house ($120,000 + closing costs of $5800).You pay only the down payment at closing. Your monthly payment (again at 4.5% interest) is $637.41 principal and interest ($29.20 more per month). You pay $4400 in down payment at closing. This amount is more feasible for many educators based on credit ratios and/or appraisal values.
Option A: Pay Cash at closing: $9900
Your Monthly Payment: $608.21
Option B: Pay Cash at closing: $4400
Your Monthly Payment: $637.41
*This is an example, and does not include mortgage insurance, taxes, and homeowners insurance.