Wednesday, March 09, 2011

What a Buyer can expect to Pay to Close the Deal:

Down Payment & Closing Costs:

Saving for a down payment on a home can be one of the most challenging tasks a young family faces in the quest for home ownership. Creating a down payment savings plan and sticking to it will help potential buyers reach their goal of home ownership faster.

How much is required: The down payment is usually expressed as a percentage of the overall purchase price of the home, and varies depending on the lender, on your credit score and the type of financing and amount of money being lent.

Currently, you can obtain an FHA loan with as little as 3.5% down, a conventional loan with 10% down, a Veteran’s Administrative (VA) loan with nothing down. It has been predicted that these limits will change and it’s always best to speak to a lender regarding current requirements.

Private Mortgage Insurance: Typically, if your down payment is less than 20% of the purchase price, lenders will require you to carry PMI, or private mortgage insurance. This insurance protects the lender in case of loan default, and usually involves an up-front payment at closing, as well as a monthly premium. However, once you have paid off 20% of the loan, you can request the policy be canceled. Some lenders cancel the premium automatically, while others require you to make a request in writing.

Earnest money or Good Faith Deposit: Buyers are usually required to deposit earnest money with the seller when they make an offer. If the offer is accepted, the earnest money is then credited towards the down payment. The amount varies widely depending on the seller and local custom, but in the East Bay it typically is 3% of the purchase price and will clear your account within three days after acceptance of offer.

Don't forget closing costs: In addition to the down payment, you will also need to save for additional fees associated with the loan. Known as closing costs, these charges cover items such as title insurance, documentary stamps, loan origination fees, the survey, attorney's fees, etc. When you submit your loan application, lenders are required to supply you with a good faith estimate of your closing costs.

Some buyers are surprised by the amount of the closing costs, which can easily run into the thousands of dollars. Depending on the situation, some closing costs can be negotiated with the seller and your Realtor would be the best person to speak to regarding a credit towards closing costs.

Gifts: If you are having trouble saving enough money, many lenders will allow you to use gift funds for the down payment as well as for related closing costs. The gift may come from family, friends or other sources, but remember that lenders usually require a "gift letter" stating the gift doesn't have to be repaid. In addition, some lenders will also require you to pay at least a portion of the down payment with your own cash. Ask a lender about their policies regarding gifts to help with your down payment or closing costs.

You’re not done yet!

Inspection Contingency Period & Appraisal: After your offer has been accepted, escrow has been opened and your good faith deposit has been cashed, you will not have to deal with the costs associated with inspections. Depending on what inspection you will need to obtain, they can cost anywhere from $200-$1000. They will need to be paid at time of inspection and will need to be completed before your inspection contingency period is up. Your Realtor can help guide you in what will be the best inspections to obtain depending on the property. In addition to inspection costs, your lender will order an appraisal which will be paid with your closing costs. They typically run about $400 but that price should be confirmed with your lender.