Let’s talk about CLOSING COSTS (& client appreciation)
Upcoming Free (& non-promotional) Home Buyer & Seller Classes:
Until further notice, all classes are going to be held virtually due to the Coronavirus.
Please email email@example.com, or firstname.lastname@example.org for a link & password to the classes.
Home Buyer Classes:
Saturday, May 9th, from 9am-11am
Saturday, May 16th, from 12pm-2pm
Tuesday, May 19th, from 5pm-7pm
Saturday, May 30th, from 11am-1pm
Saturday, May 16th, from 9am-11am
Thursday May 21st, from 5pm-7pm
If these class dates and/or times don’t work for you, please let us know. We understand that you have lives, and families, and work. We will work something out that works better with your schedule. Just let us know….
Good morning… or afternoon? I have lost all sense of time, and dates. It’s a weird time in our lives right now. A few weeks ago when I wrote up the ‘Forbearance and what it really means’ blog, I thought that we would all be back to ‘normal’ by now…whatever ‘normal’ is… However, I think we can all agree that 2020 is the year that time forgot, and here we were all excited about holidays falling on weekend days…
Chris & I are getting used to the virtual classes, and people seem to like them. It is a shorter time frame though so there are things we simply do not have time to cover, and that’s why I need to step these up again to at least every other week instead of just once a month as I’ve been doing. Please, if you have any questions, send them over to me, and I will be happy to help! Chris and I are both still working. I am still showing homes, and writing up offers, but showing homes is a bit trickier right now as we do want everyone to be safe, and we have to work within the guidelines that we have been given. Who says an old dog can’t learn new tricks???
Just a quick message… usually about now we would be having our Client Appreciation Event where we THANK YOU for your friendship, your referrals, your continued business & support…and well, just for being part of our lives! We LOVE YOU. Let’s be honest…that’s not happening this year, so be on the lookout for a little something-something from me and Chris Berg in your mailbox in the next few weeks. When you get it you just have to tag us on the social media of your choice…Facebook? Instagram? …and maybe leave us a glowing review somewhere?? We miss you!!
I want to go over Closing costs this time, and ‘hopefully’ I will be able to get a short video out on this too. I am working on that one… Let me know what you think!
Closing costs are an important part of the home buying (or selling) process, but no one really knows what they are, are often how much they’re going to be….and why is that? Well, first you need to know that there are 28 people involved in the purchase/sale of a home. You will most likely only ever see four of them…. your lender, your agent, your inspector, and your title officer at the end. You’ll hear a lot about appraisers, and underwriters, but that is a different blog. Everyone has a job to do in the transfer of the property from the seller to the buyer….and everyone needs to get paid. Your buyers agent is FREE (don’t get caught by ‘buyers agency fees’ as those are not common), but that may be the only free thing you get. Seriously… you don’t have to pay for a buyers agent! There is your good news. 😀
So what the heck is closing costs then? Lots of people talk about closing costs, but most people don’t understand what they are…or how they’re paid. Closing costs have two separate parts really…1….the part associated with your loan, and 2…the part associated with the title company and changing the ownership of the home to you..
One thing you need to know is that closing costs are not set…in other words…one persons closing costs will not be the same as another persons closing costs. Why? Because …1….every person has a different loan based on their credit scores, type of loan, amount of home buying, amount (if any) of downpayment, what day they’re closing (keys) on, interest rate, APR rate, lender they’re using (some have more fees than others), etc… See how complicated that can get?
So what about the second part? Well, that can differ as well based on the title company since not every title company charges exactly the same for their individual costs. Then there is also the costs for the property taxes of the home, time of year you are buying based on when the taxes are due/have been paid, cost of your home owners insurance, amount of loan interest, and more. Even more confusing, yes?
Ok…now I know you are thinking that this weeks post is pointless then, but really, I have a point! 🙂 My point is that closing costs are variable based on you, your loan, your lender, your (soon to be) new home, and on the title company. So how do you figure that out? Well, really no one can figure out HOW much your closing costs are going to be until you have an accepted offer on a home…then we can figure out what your closing costs will be because you will have a home to base numbers off of, a loan chosen, a lender, and the title company picked out. Most numbers in real estate are a guesstimate until you have all the pieces in place…all the ducks in order…so to speak.
When you are getting pre-approved, your lender will base all your numbers on a guesstimate…what we think your costs are going to be. Most times lenders, etc will guess high so that the numbers will come in smaller and more affordable for you. It is always better to look like a hero than a zero! 🙂
I know, I know…still not very helpful is it? I am sorry. Closing costs are as individual as you are. However, 98% of buyers will request the seller to pay for 2%-3% of their closing costs. Where does that number come from though as even this number changes depending on the person, their loan, the home involved, etc.
Well, to start… a FHA loan requires 3.5% downpayment. FHA is the most common loan type for buyers as it is very forgiving, and easier for the majority of folks to get pre-approved for. There are some loans, and yes, grants too, that can take care of that down payment for you….meaning a ZERO down loan for you, the buyer. There are some additional fees to using these down payment assistance programs that is part of your closing costs. There is also a zero down USDA loan that has other fees associated with it.
On average, the costs between title, loan, lender, taxes, interest, insurance, etc….run about 2%-3% of the homes purchase price….rarely does it run more. When listing a home, I (and many other agents) include at least some seller paid closing costs to the sales price of the home. This is done because so many buyers request those from the seller, and this way it isn’t a surprise to the seller. So, yes, some sellers will pay for your closing costs when buying a home…of course, that depends on if there are other offers involved. In a multiple offer situation the seller may not pay any closing costs. One thing you need to know though is that if you ask for 3% in closing costs, and the lender only needs 2%, you don’t get that other 1%….it goes back to the seller. You can’t get cash back from buying a home….unless you are having your earnest money &/or appraisal fee returned to you…this happens if you are using a loan that covers your costs and fees. Usually your appraisal is part of your closing costs (but paid for at time of appraisal), and your earnest money is applied toward your down payment, or your closing costs.
Again, 85% of the time a buyer will request some of the closing costs to be paid for by the seller. The other 15% of the time a buyer will pay their own closing costs so they don’t have to finance them. Right there is the REALITY of closing costs. The seller never actually ‘pays’ for your closing costs… the buyer is financing them into the purchase price of the home…adding the closing costs to their loan. The seller is merely accepting less than the purchase price so that the buyer can do this. If you remember ANYTHING about this email…that is what you should remember.
So, if a buyer has their own down payment, the lender can also help pay closing costs, and this can be done a couple of different ways. If a buyer is using one of the down payment assistance loans or grants, or the USDA loan, the lender can’t help pay those closing costs. The buyer can use their earnest money towards these though. Not asking a seller for help with closing costs does make for a ‘stronger’ offer, but let’s be honest…that isn’t always an option for a lot of people. However, if able to do so, sometimes people will use the zero down loan or the down payment assistance loans, and use the money they have for their own closing costs, but asking the seller for help with closing costs is quite common. Really it depends on many things.
In short….buyers responsibility for closing costs are:
* Lender’s Title Insurance Policy
* Half of the escrow fee
* Home Inspection (paid for at time of inspection)
* Recording fees
* First year Homeowners Insurance Premium
* First year Flood Insurance (if applies)
* Pro-rated property taxes
* Appraisal fee (paid for when appraisal is ordered)
* Survey fee (if required)
* HOA fees (if applies)
* Pro-rated HOA fees (if applies)
* Lender fees; appraisal fee (see above), credit report, loan origination fee, pre-paid interest, private mortgage insurance
All of these fees can change depending on the title company, the lender you’ve hired (closing costs can differ between lenders as some charge more & some charge less), the home insurance company you are using, the home inspector you’ve hired, the appraisers and what they’re charging (and if you need a rush), etc..
Let me see if I can’t make that part a bit easier…
I am going to give you 2 loans to choose from, and we are going to PRETEND that I am loaning you $1,000 for a year
First loan is 0% interest. Second loan is 5% interest.
What loan do you want? The 0% one, right? Most people (in the class) always choose this one, but frankly, there’s not enough detail here for you choose a loan, so let’s take it a step further….
I have to charge you (the buyer) closing costs. Closing costs is to pay for all those 28 people that are involved in the purchase/sale of a home. The seller has their own portion of closing costs to pay as well. On ‘average’, the closing costs for the seller are going to be about 8%-9% of the purchase price. Yep… there’s a cost to buy a home, and a cost to sell a home too.
First loan at 0% Second loan at 5%
Bank one charges $200 Bank two charges $100
So, what happens a year from now? How much of your money do I have a year from now when you come back and pay me back my $1,000 that I loaned to you?
Well….let’s break that down… Remember that the original $1,000 doesn’t count because it was already my money. I loaned it to you, and now you are paying it back to me…
First loan at 0% Second loan at 5% Closing costs….
Bank one charges $200 Bank two charges $100 Interest…
Bank one 0% Bank two $50
How much of your money do I have?
Bank one = $200 Bank two = $150
So with bank one it’s going to cost you 20% to borrow that money for a year, & with bank two it’s going to be 15%… Which one do you want now?
Of course, this is a very simplified example, but you get it. There is a lot more to closing costs & buying a home than just interest rate. You could have an amazing, unheard of interest rate, but the costs to get that rate could end up being astronomical, and not worth it over the length of your ownership. Remember that interest rates are NOT controlled or governed by the lenders….it is by the GOVERNMENT. All lenders are very close to each other because the interest rate is not in their control. Realistically speaking it is how much they are going to CHARGE you for the loan and the interest rate that is going to matter.
as always….I am available for questions…as is Chris Berg with Cardinal Financial (email@example.com or firstname.lastname@example.org & 503-320-0925 cell)
One last thing you need to remember is that a real estate agent is not a sales person. It is not our job to ‘sell’ you anything. We are assistants, advisers, guidance, and help. You should not feel as if your agent is trying to sell you a home, or anything else, our job should be to help you in getting the home you want. This being said remember that you do not get T-Bone steaks for the price of hamburger…Look ONLY at homes within your budget. ALWAYS ask questions, and expect answers without a lot of lingo. I was always told that if you can’t explain something in a way that the other person can understand clearly, it is because you don’t understand it yourself. 🙂
Information is power, and I hope that I am able to help you. Good luck, and as always…May the odds be ever in your favor out there…. AND If you are looking for a real estate agent, I would love to be able to help you.
As always….this is just a quick overview…. again…and I can’t say this enough…please remember that your agent is NOT a salesperson, and should not be acting like one. Real Estate is not really about houses, it is about relationships. Your agent, and your lender work for YOU. You drive the bus…we are merely GPS to help you get to your goals. Like the classes, this weekly blog email is to help you with your home adventure. The goal is to be informative and non-promotional. 🙂 We are, however, hoping you will call and want us to help with your adventure.
If you have any questions about this, or something you have heard…or if you would like me to help you with your home adventure, please call, email, text, or facebook me anytime. I am, as always, happy to help!
Thank you again for your business and your referrals!! …and thank you for referring these classes to your friends, family, and co-workers.
. ..disclaimer…if you have already purchased a home, or would no longer like to receive these emails, please let me know and I will be happy to remove you from any further mailings…
Can you buy a home with ZERO out of pocket??
What are the costs of buying a home? ALL of them??
Buyers Agency…what are they really, and do you have to sign one?
Last Month: What does forbearance (rent or mortgage) really mean?
Have a great day, and I will talk to you soon,