Your Buyer's Guide to Closing Cost Credits

Your Buyer's Guide to Closing Cost Credits



Closing Costs ... people are always interested in them.

 

HOW they can be paid, borrowed, financed ... and possible credits for Closing Costs that might be available to them from their Sellers or their Lender. 

I find that many of my new clients have preconceived notions about Closing Costs.  Or they're just plain confused by them.

And it's easy to understand why this can be the case.  The differing loan types ... Conventional, FHA, VA, USDA, Jumbo loans ... all have varied Rules and Guidelines.  It can be tough for new Borrowers to wrap their head around all of it. It's a lot to digest. 

Adding to the confusion:  In some cases, the amount of down payment made on the purchase can affect the amount of allowed credits received from a Seller.  

Yep.  See what I mean?  It can seem a bit overwhelming. 

That's why, when I hold my initial conversations with Borrowers regarding Closing Cost options, I begin at the beginning ... with the basics.  That means an explanation of what Closing Costs are.  

My explanation always includes a list of those cost items that are "Pre-Paid" ... meaning they are funds needed to Close on a Conventional Loan in addition to the Down Payment made.

In previous articles, I've discussed the various programs available for Home Buyers with Conventional Financing, but suffice it to say ... 3%, 5%, 10%, 15%, and 20% Down (or more) programs are prevalent today.  

For those making Investment Property purchases: 

The rules regarding the Seller's contribution towards Closing Costs is straightforward and clear cut.  The Seller can contribute no more than 2% of the Sales Price, if negotiated into the Contract. 


Here's an example:

 

Purchase Price = $200,000 
 X  2% 
=
Seller-Paid Contribution of $4,000
 
It must be noted:  It's possible that the Lender can credit back some or all of the Closing Costs, either in the form of a lump sum or a percentage (%) of the Loan Amount.  I've found that typically my Borrowers will absorb or accept a higher interest rate as a trade-off for receiving that Closing Cost credit.
 
In NO case, can Closing Costs owed by a Borrower, be "rolled into" the loan amount on a Conventional Loan.  Certain program costs can be allowed when utilizing FHA, VA, and USDA financing, however.
 
For Owner-Occupied purchase transactions, the allowed Seller-paid Closing Costs vary according to the Down Payment percentage (%).  (Conversely, the Loan-to-Value (LTV) Percentage).
 
Those variations are shown in the table below: 
 
 
These stated credits can be used to offset (pay for all or part of) the true Closing Costs related to:
 
  • Title Fees
  • Lender
  • Appraisal Fee
  • Attorney Fee
  • Credit Report
  • Flood Certification Fee
  • Points
  • Etc. 

 

... as well as pre-paid items, which generally are set aside for:

 
  • Real Estate Taxes
  • Homeowners Insurance 
  • Interest Charges
  • Home Owners Association Dues (if applicable)
  • Mortgage Insurance Premiums (initial or renewable
 
As you can tell from the info provided above, there are many scenarios available for Buyers' consideration prior to their making a request for Seller-paid Closing Cost assistance.  
 
Each Buyer has their own individual and unique finances, needs, and circumstances that contribute to the final outcome.  I will (or you own Lender will) conduct a thorough analysis of all options available to you ... and then discuss them with you.  Once that is completed, you'll be able to make a sound decision regarding your Closing Cost request.
 
Buyers need to know:  It's almost impossible for Buyers to go back and ask for Seller-paid Closing Costs assistance AFTER a Contract has been signed.  Having your discussion with me (your Lender) and your Realtor ... proactively, early, prior to entering into Contract is vitally important and wise.

Need more info?  Have questions regarding your Chicagoland home buying and financing?  Let's talk today!
 

 

    
    * Hoping to Buy or Refinance a Home in New Lenox, Will County, or elsewhere in the Chicagoland area? Contact me! I'll put my 40+ years of Mortgage experience and expertise hard to work on your behalf.
     I'm easily found at:

Gene Mundt
Mortgage Originator - nmls #216987 - IL Lic. 031.0006220 - WI Licensed
 
American Portfolio Mortgage Corp.
nmls #175656
 
Direct: 815.524.2280
Cell or Text: 708.921.6331
eFax: 815.524.2281
 

  

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Gene Mundt

 Mortgage Originator  -  NMLS #216987    

                                 IL Lic. #031.0006220  -  WI License #216987                                                                                                    

NMLS #175656

 

Gene Mundt, Mortgage Originator,  40+ years of #mortgage experience, will offer you exemplary mortgage service and advice when seeking:  #Conventional, #FHA, #VA, #Jumbo, #USDA, and Portfolio Loans in #Chicago and the greater Chicagoland region, including:  The #Lincoln-Way Area, #Will County, (#New Lenox, #Frankfort, #Mokena, #Manhattan, #Joliet, #Shorewood, #Crest Hill, #Plainfield, #Bolingbrook, #Romeoville, #Naperville, #Wilmington, #Peotone, etc.), #DuPage County, the City of Chicago, #Cook County, and elsewhere within IL and Wisconsin. 

 

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Comments

It will help in the long run to make sure they understand the costs.

Posted by William Feela, Realtor, Whispering Pines Realty 651-674-5999 No. (WHISPERING PINES REALTY) 10 months ago

Gene,,

I stopped by thank you for the information. 

Posted by Noel Mayer, YOU'RE RIGHT AT HOME WITH NOEL (FAIRMOUNT REALTORS) 10 months ago

All good information, Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi!!!

Thank you for sharing and making it easier to understand!  :)

Posted by Julie Larson Realtor® Sarasota FL 941-882-0322, When you're thinking of moving...ThinkSuncoast.com (PalmerHouse Properties Florida - 941-882-0322 | Serving Sarasota, Manatee & Charlotte Counties) 10 months ago

This is a helpful explanation of buyer cost. It is also important the seller understand their part in the cost. 

Posted by Frank Rubi, FrankRubiRealEstate.com (Frank Rubi Real Estate, LLC) 10 months ago

Hi Gene - This is very useful information for borrowers. At the present time, our seller's market is so hot that asking for concessions from the seller is usually the kiss of death for an offer, but the wheel turns and eventually these will be back.

Posted by Dick Greenberg, Northern Colorado Residential Real Estate (New Paradigm Partners LLC) 10 months ago

Hello Gene. Terrifc review of what buyers need to know s soon as possible to make the buying experience easier. Enjoy your day!

Posted by Wayne Martin, Real Estate Broker (Wayne M Martin) 10 months ago

This is an excellent article. Our market is driven by sellers contributing to buyers closing costs. It is good to know the percentages up front that are allowable.

Posted by Debbie Reynolds, Your Dedicated Clarksville TN Real Estate Agent (Platinum Properties) 10 months ago

Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi this is one of the most informative posts I've read regarding buyer's closing costs, thank you for sharing. Most buyers are confused, have no idea how much they need in down payment.

Posted by Beth Atalay, Cam Realty of Clermont FL (Cam Realty and Property Management) 10 months ago

This is a very good explanation of a difficult subject, particularly for first-time buyers.

Posted by Nathan Gesner, Broker / Property Manager (American West Realty & Management) 10 months ago

Excellent information for buyers, Gene.  This is one of the most often asked questions.

Posted by Gabe Sanders, Stuart Florida Real Estate (Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales) 10 months ago

Buyers and sellers certainly need to understand what they are paying in closing costs.  Early discussions should help the process go smoothly.  Great article.  It does show the variety and complexity that might be involved with various programs.

 

Posted by Mel Ahrens, MBA, Kelly Right Real Estate, Customized Choices for your Real Estate Needs (Kelly Right Real Estate) 9 months ago

Knowing the amount of money required to close and potential loan terms helps the buyer and their Realtor make an offer that is more likely to close.

Posted by Gary L. Waters, Broker Owner, Waters Realty of Brevard, LLC, ... a small office, delivering big service! (Waters Realty of Brevard, LLC) 9 months ago

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