Ah yes! Closing Costs…everyone has them but not
everyone understands the way at which that final number is calculated.
Well, it is my hope to help you understand what all constitutes that final
number figured in your closing costs. Keep in mind, your lender should
provide you with a document that is called a “Loan Estimate”. This
Estimate will include all the charges, all the prepaid costs that you have to
provide amounts for, your total down payment and should show you a final
monthly installment amount. So, let’s dig in and answer a couple of
questions that will determine the amount you need to bring to the table.
Question #1: Will you escrow your taxes?
Escrowing your property taxes means that you pay a monthly
portion of your property tax and your mortgage company will pay them for you
when they come due. For those people, like myself, that are not
disciplined enough or just don’t want to think about it each month, this is a
great option.
If you answer “yes”, then this will figure into your closing
costs. When you close, you will pay the prorated amount of property tax
from the day you close until the end of the year plus you will be responsible
to put into escrow 2-3 months of advance payment to make sure your tax amount
will cover your taxes due.
If you answer “no”, then you will need to prepare to make
those payments to a savings account and be ready to pay when they are
due. Your monthly payment will be smaller due to the not having to pay in
for your monthly taxes.
Question #2: Hazard/Homeowners Insurance
Homeowners insurance is a personal preference. There
are many options out there from State Farm, Farmer’s, Allstate to local brokers
that shop for your best rate. Keep in mind, cheaper isn’t always less
expensive but also get the most coverage you can get for the budget you
have. With that in mind, your homeowner’s policy is an amount that will
affect your closing costs. How?
- If you
escrow…You will be responsible for one year’s prepayment plus 2-3 months
in escrow. So, if your total policy is $1200/year, you will need $1500 for
insurance at closing. That is $1200 for year 1 plus $100/month for 3
months equaling $1500.
- If you
don’t escrow…You need the proof of one year’s prepayment.
Your total closing costs are the sum of all of your title
company fees, lender fees, property taxes, insurance and administration
fees. Now this leads to the next statement…especially heard from First
Time Homebuyers…
I have to pay HOW MUCH? I just put down
Thousands of dollars and now have to pay more? Don’t worry, there are
options for you.
- If
possible, reduce your down payment and keep some of your down payment to
cover the closing costs. This one is simple if you are going with a
conventional loan.
- Ask
your lender if you have any lender credits that they can help you with for
your closing costs. This can usually be done by taking a little higher
interest rate and rolling your closing costs into your loan. Keep in
mind, you are financing your closing costs over 30 years. In
reality, people stay in the home they purchase between 3-5 years.
- Gift
funds. Maybe your parents or grandparents can help you with a gift that
you can use toward your purchase. This will just have to be
documented and your lender can instruct you on the process for receiving
gift funds.
- Bonds/First
Time Buyer Programs. These are great! Any good lender can take your
situation and they should be able to know what programs are available to
you. There are many different type of programs depending upon your
personal situation. ASK YOUR LENDER!
Hopefully this little blog will help you along your way in
purchasing your home. If you need any recommendations for a great lender,
I have lenders that I can recommend and have worked with over the years.
Homeownership is one of the best ways to acquire wealth for the long term in a
person’s life. Should you need any help, please feel free to call/text me
at 972-896-8046 or email at tmcmahan@kw.com
You can also search for your next dream home on my website
at http://trinprop.com
Want to see reviews from my past clients? Feel free to
go to the following sites to see what they have to say…
I look forward to working with you!
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