Lew Sichelman
You’ve scrimped and saved, and you finally have enough money for a decent down payment. But do you have enough to cover your closing costs, too?
The taxes and fees that you must pay at settlement vary widely from place to place. Even the estimates from online calculators differ broadly.
For example, on a 30-year, $250,000 loan in my ZIP code, Bank of America’s estimator says closing costs will run almost $11,000. That’s roughly 4.4 percent of the loan amount. But NerdWallet’s calculator on the same loan (but not based on any ZIP code) says the charges will run about $8,150, or 3.6 percent.
Generally, you can figure on paying anywhere from 2 percent to 5 percent of the loan amount. The lower the loan amount, the higher the percentage, says Keith Gumbinger of mortgage information company HSH.com.
Even at lower percentages, charges can mount quickly. But to paraphrase Mighty Mouse, help is on the way.
State, Local Help
Many state and local governments offer assistance with down payments and closing costs. Most programs are targeted – say, to first-time buyers, first responders or teachers – but others are available to anyone who needs a little help.
Down Payment Resource, a firm that tracks some 2,200 down payment and closing cost assistance programs, offers plenty of examples.
For any buyer in Alaska, the state housing finance corporation offers a grant of up to 4 percent of the loan amount. The grant does not have to be repaid.
The city of Kenosha, Wisconsin, offers a 4 percent grant that doesn’t have to be paid back as long as the homebuyer lives in the house for a minimum of five years. (The grant must be repaid if the buyer moves out sooner.)
Charges can mount quickly. But to paraphrase Mighty Mouse, help is on the way.
In Somerville, Massachusetts, income-eligible rookie buyers can get help with closing costs up to $5,000.
The Virginia Housing Development Authority’s Closing Cost Assistance Grant provides up to 2 percent of a home’s purchase price or appraised value (whichever is smaller). Recipients must be first-time buyers, unless the property is located in targeted areas.
Oregon’s Home Stretch program offers a $1,000 grant to any buyer moving into the central part of the state.
Veterans, Teachers Have Options
There are other programs, too, offered by employers or private organizations. For example, Homes for Heroes, a nationwide network of real estate, mortgage and local business specialists, offers up to $700 per $100,000 in purchase price to active military personnel, veterans, teachers, first responders and members of the medical community.
As long as you work with an affiliated agent, HFH will reimburse your out-of-pocket closing costs up to 0.7 percent of what you paid for the house. Plus, if you work with other professionals in the network, you can save an average of $500 on lender fees, $150 on title services and $50 on a home inspection. The average total savings after closing is $2,400, the company says.
There are other ways to save, too. While some charges cannot be changed – prepaid interest and taxes, for example – you might be able to lower others:
First, ask the seller to pay some or all of your closing costs. Note: This probably won’t fly in the current seller’s market. But when the tide turns, it’s a good ploy.
Second, some lenders have programs to help with closing costs, so ask yours what may be available. Under its America’s Home Grant program, Bank of America gives closing cost grants of up to $7,500 for its borrowers, and that’s on top of a down payment grant of up to $10,000.
Third, you can try bargaining with each service provider. For example, if you are working with a mortgage broker, ask if they’ll trim their commission a bit. Ask the same of your real estate agent.
Insurance Offers Other Savings
If your down payment is less than 20 percent of your loan amount, you’ll need mortgage insurance: a policy you pay for, but which covers the lender if you fail to make your payments. That adds anywhere from 0.55 percent to 2.5 percent of the loan amount to the cost of your mortgage. If there is an upfront cost, ask if you can roll that amount into the mortgage. Your monthly payments will be higher, but you’ll need less cash at closing.
enders will also require you to purchase title insurance – again, to protect their investment if a defect in the title is found (a long-lost relative suddenly appears, perhaps, or a signature was forged 20 years ago). Again, shop around. Lenders don’t usually care which company you use, as long as they are protected.
At closing, you will be offered the opportunity to buy your own title policy – one that protects YOUR interests – and it’s a good idea to do so. But if you shop beforehand, you may be able to lower the price.
You will need a homeowners insurance policy in place when you reach the closing table, so hunt for the best rates.
If your state requires the presence of an attorney at the closing table, shop around and compare rates. But don’t necessarily jump at the lowest price – you might cheat yourself out of decent representation.
Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at lsichelman@aol.com.
