This is the most frequently asked question that I get from buyers, especially first time home buyers in Cedar Rapids and Iowa City.
Closing costs are addressed three different times when I represent a buyer.
1. We discuss closing costs in the initial buyer consultation. This is part of the down payment and financial discussion that we have. I will ask many questions about your ability to pay for these costs in addition to the down payment required for your loan. Closing costs can also include the prepaid expenses such as the home inspection, radon inspection, termite inspection and the first year of home owner's insurance that is required to be paid a year in advance.
2. Your lender of choice will go over these costs with you when you meet with them to discuss the loan process. The lender will give you something that is referred to as a good faith estimate of settlement costs. This amount is not exact. The lender will use an average tax base and average insurance rate to give you this number. When you offer on a specific home, it is a good idea to give the lender the exact pricing, closing date, and taxes for the property to give you a closer estimate of what you can expect.
3. Once you are ready to make an offer, I will prepare a net sheet for you that will sum up the prepaid expenses, the costs from the lender for your loan, and the credits that you will receive from the seller including closing cost assistance and the tax proration. Depending on the type of loan, you need to have a certain percentage of your own money in the transaction. This means that sometimes you can only ask for a set amount of the closing costs to be paid by the seller--the lender will advise you and me about this amount.
Some common closing costs and prepaid expenses are as follows:
Origination fee by the lender (if applicable)
Commitment fee by the lender (if applicable)
Private Mortgage Insurance Premium (if your down payment is less than 20%)
First Year of Home owners' Insurance Premium
Closing office fee
When you meet with your lender, be sure to ask for a good faith estimate of all of the costs that are associated to the type of loan that you are applying for, some loans may have a lower interest rate, but different fees than one that has a little higher interest rate and less fees. There are many options out there for loans depending on how long you expect to be in the home or what your equity position may be. I will be happy to go with you to meet with a lender to make sure that your questions are answered and so that I have a good understanding of how much we need to request when writing an offer.
Seller concessions are common in Cedar Rapids and Iowa City, so don't be afraid to ask the seller to contribute to pay some or all of your closing costs! This will leave you with more money to put towards the down payment on your loan or give you extra money for improvements or updates that you would like to make to the home right away!
If you would like to schedule a free buyer consultation with me to see what today's market has to offer for you right now, please give me a call at 319-521-0701 or email me at email@example.com! I hope to hear from you soon.