Do You Have To Pay Closing Costs To Refinance Your Home – Posted by Alex Lopez on Monday, March 7, 2022 at 10:00 am By Alex Lopez / March 7, 2022 Comment
Obviously, there’s no shortage of real estate tips that offer advice on buying a new home, how to prepare your home for listing, where to find financing, and moving tips for a smooth transition. But what about managing closing costs? Do you really know what to expect to pay on closing day? And do you know the different methods of paying those closing costs?
Do You Have To Pay Closing Costs To Refinance Your Home
If you’re wondering how to pay closing costs, read on. We’ll help shed light on what closing costs are, what you can expect, and the many ways we can help you cover those closing costs.
How Much Are Closing Costs — What Will You Pay?
Closing costs are a real estate transaction term that collectively refers to a number of fees typically paid by buyers when purchasing a property. These fees generally represent the professional services involved in facilitating the transaction itself. The people responsible for preparing the documentation, documents and processes are compensated with these fees. Closing costs are standard industry expenses and may include:
Of course, no two closing transactions are the same and neither are the closing cost amounts. But on average, lenders typically tell buyers to put two to five percent of their loan down for closing. You will know exactly what your closing costs are when your lender prepares your loan estimate document. So, prepare ahead of time and contact your lender to find out what your closing costs will be.
But now you’re wondering, how do I pay closing costs? Especially when you realize that a $100,000 home purchase price could translate into a closing cost bill of $2,000 to $5,000, you’ll be interested in exploring the various methods of covering those fees.
If you’ve been saving up to buy a home in the Lehigh Valley, you may have enough cash reserves to pay your closing costs directly. Lenders will want to look at two months’ worth of bank statements showing your balance, also known as ‘condition’ funds. And there are legal guidelines that require those down payment funds and closing costs to be in your personal bank account for at least 60 days before they agree to your plan to pay the closing costs directly.
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Be sure to clarify if you can write a personal check from an account or if there are requirements for a certified check. And as a side note, don’t get too short on your savings, especially when it comes to covering upcoming moving expenses and new household expenses.
For anyone who may be self-employed, there are provisions that allow you to transfer closing cost funds from a business account into escrow or your personal account. Again, the 60 day “seasoning” rule will usually still apply. Your loan officer will be an ideal resource for questions you may have about your specific requirements.
It is not uncommon for Lehigh Valley home buyers to include closing costs with their mortgage. If you prefer not to pay closing costs directly, talk to your loan officer about the type of loan you have. There are generally affordable options, especially for first-time home buyers, to add those closing costs to your mortgage total. The downside is that you will pay interest on these closing costs over the life of your mortgage. Based on today’s home value averages, your monthly mortgage payment can increase by $5 to $10 for every $1,000 you put into your total mortgage. But if you’re looking to maintain cash reserves, building the closing cost into your loan can be a great method.
Seller concessions are another way to help pay closing costs. For example, on a USDA, VA, or FHA loan, you can ask the home seller to pay some or every last penny of the closing costs. If you are in a seller’s market, where there are many offers on the table, this request may not be successful. In some real estate scenarios, it may make sense to make the application more attractive by offering a higher price for the home in exchange for covering the closing costs.
Earnest Money Vs. Down Payment: What’s The Difference?
It is also essential to recognize that there are maximum amounts of seller concessions that may apply to your specific loan situation. These guidelines include the type of occupancy, i.e. primary residence, secondary home or investment property, along with loan-to-value (LTV) percentages. Discuss these viable options with your real estate agent and loan partner to find out what guidelines you should follow before making your offer.
If you’re hoping to find other methods to cover those closing costs, you can explore government assistance programs. There are local, state, and federal housing programs available to those who fit certain homebuyer profiles. First-time home buyers, low-income, moderate-income and region-specific grants and forgivable loans can help. Talk to your lender about these low-interest or forgivable programs, designed to provide the down payment and closing costs that sometimes deter homebuyers.
Depending on where you’re employed and how long you’ve been working there, it may be worth talking to your employer about any company-sponsored homebuyer programs. Some companies offer incentives and perks that include short-term loans that allow employees to cover closing costs and down payments for a first-time home purchase. If your job offers this type of program or something similar, talk to your HR department about the necessary documentation and your lender to confirm the processing of funds for this resource.
You can ask your friends and family to help contribute to your closing costs. For legal reasons, most lenders require an official “gift letter” to verify the terms of the gift. And in some cases, you can set up an escrow account where others can contribute freely without documentation. Talk to your loan officer about how it might work. And then you can rally your friends and family to help lower the closing cost.
Solved: Estimating Closing Costs On Home Purchase. How Much Might A Home Buyer Expect To Pay In Closing
If you own another property or have valuable assets to leverage equity, you can explore collateral or secured loan options to cover the closing costs of your home purchase. For example, the vehicles you own, RVs, or real estate can provide you with the capital you need to secure a loan or provide collateral. However, keep in mind that the subloans you explore will carry interest rates and may affect your debt-to-income ratio needed to secure your new home loan. So talk to your loan officer first to find the best way to leverage these other assets.
You can talk to your loan officer about credit lenders. This arrangement allows a lender to cover some or all of the closing costs associated with your business. In return, you will likely have to commit to a higher interest rate. You’ll want to do your affordability cost analysis to see which makes the most sense for you, short-term closing cost relief or the best long-term interest rate. But in many home buying scenarios, lender credits can be very helpful for down payment and closing costs.
Before buying a home in the Lehigh Valley, consider all of these options to explore methods of paying closing costs. Having the right real estate agent partner can also help, so don’t hesitate to connect with Homeway Real Estate to start your journey. Our professionals will help you buy a home and coach you to avoid pitfalls and unknowns, as well as your resources and options, including those associated with closing costs.
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A: The short answer is that most cash purchase companies will cover all traditional closing costs. This means if
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