Now here is a question that I am asked quite a bit by Perspective Home Buyers.  With changes in Mortgages and the ever confusing "Closing Costs" - it is no wonder that many Home Buyers do not know how much they need in hard cash to buy a home.  Hopefully this will help:

Currently one of the most popular Mortgages Products available is an FHA Mortgage. An FHA Mortgage is a government-backed loan which currently requires a 3.5% down-payment.

Now there are a few restrictions to using an FHA mortgage:  Briefly they are: You may only have 1 FHA mortgage at a time, no 2nd homes with an FHA mortgage.  The property must meet some property condition requirements.  Fixer-Uppers won't qualify for a standard FHA loan; but there are other programs available for those properties.  Also; there are restrictions when using to buy condos (the buildings must be approved by FHA) and they are able to used for a co-op.

Next come the Closing Costs:

Closing Costs are Broken down into 3 Main Categories:  Lender Fees,  Settlement Fees & Pre-Paids and Taxes.

Lender Fees:

These are the Fees which the lender charges for the loan.

- Loan Origination Fee: This fee covers the lenders costs to process the loan.  FHA allows a Max of 1%.

- Loan Discount:  Also called "buying a point".  This is a 1-time charge a buyer CAN pay; in order to reduce their Interest rate for the life of the loan and thus reducing their monthly payments.

- Appraisal Fees:  The lender orders the appraisal to calculate the value of the home.  This costs about $400-$500.

- Credit Report Fee:  The lender should not charge you more than $25-$50

- Lenders Inspection Fee:  Usually you only see this when using a special renovation loan (called a 203K) or in new construction.

- Processing Fee: The fee a lender charges to process the loan application.  Usually $200-$300.

- Underwriting Fee: The fee charged by the lender or investor for underwriting the loan.  $100-$300

- Flood Certification Fee:  The fee to determine if the property is in a flood zone.  $20

- Other fees such as "Funding Fees", "Brokers Fee" or "Administrative Fees"; may also be part of the loan.  Every lender is slightly different in what the Call their Charges and what they charge for the various services.

Pre-Paid Fees:

- Interest: This is the interest for the loan for the number of days remaining in the current month you close in. Example: You close on the 15 th of April;  April 15-30 = 16 days (inclusive).  If your Mortgage Interest is $50/day - you would pay $240.  Close on the 30th; you pay $50.

- Mortgage Insurance Premium: The cost of Mortgage Insurance which is required unless you are putting down 20%.  About 1.5% of the loan.

- Hazard Insurance Premium: This is your 1st Full Years of Home Owners Insurance; unless you already paid it before closing.  Not required for Condos which have a 'Master Insurance Policy'

Escrows Required by Lender: (Typically required when putting down less than 20%)

- Hazard Insurance: Since the mortgage company will be making your homeowners insurance payments - they will collect money in order to pay the next bill.  Usually about 2 months worth to start.

- Mortgage Insurance: Usually 2 months of the monthly FHA mortgage premiums.

- City/County Property Taxes:  Since the lender will be paying your property taxes; they must have enough in escrow to pay your 1st tax bill.  This will vary city to city as well as time of year; depending on when taxes are due.

- HOA/Condo Dues:  Sometimes required.  Normally only the NEXT months will be due at closing; plus the prorated amount for the current month.

Title Company Charges:

- Settlement Fee:  The Charge the Title (or Escrow) Company charges on the transaction.  Normally about $300

- Abstract of Title Search: The charge to research the Title of the Property.  About $300

- Title Examination & Binder: The charge to examine the title and issue the Insurance Binder.  About $200-$350

- Document Preparation: The fee title companies charge to prepare the documents and legal papers. $100-$200

- Title Insurance:  There are two types; Lenders & Borrowers.  The Lenders is prices based on the loan amount.  The Borrowers is priced upon the Purchase Price amount.  While only the Lenders Policy is Required; a Borrowers Policy is HIGHLY recommended.  Cost Varies: $1000-$3000 depending on purchase price.  (In DC about $2000 for a 300k property).

- Wire Fee or Currier Fee:  The cost to overnight the loan package to the lender.  About $50

Recording Fees and Taxes:

- Recording Fee:  The Fees the Local government charges to record the deed and mortgage.  $100-$200 depending on Jurisdiction.

- Transfer/Recordation Taxes:  These also vary by Jurisdiction of your local government.  (In DC; it is 1.1% of the Purchase Price if under $400k and 1.45% if over $400k).

Additional Fees:  Buyers may also have additional fees when purchasing a property.

- Home Inspection.  Usually paid before the closing.  Between $300-$500.

- Survey of property - $300 (Not required in a condo)

- Termite Inspection.  About $50-$70

- Broker Fee.  Many Large Brokerage Firms charge an Administrative Fee.  About $300.

That all being said: How Much Do you Need?

The Minimum is 3.5% for a Down-payment on an FHA loan.

Closing Costs Vary.  A good rule of thumb is 3%; but could go higher on an FHA loan (4-6%).  Any good lender can provide a Good Faith Estimate (GFE).  Get this in writing THEN have your Real Estate Professional Review it for mistakes and errors.

Happy Home Buying !

Contact James Downing of the Downing Real Estate Team, if you are selling, buying or have questions!

Office: 202-362-5800   Cell: 703.244.3971

Licensed in Washington DC, Virginia & Maryland.

Coldwell Banker Residential Brokerage - Chevy Chase
5028 Wisconsin Ave NW  Suite 100 * Washington DC 20016