Month: January 2015

Above and beyond the down payment that you can expect to provide when you purchase a home, there will be other out-of-pocket expenses. They fall into one of three categories: lender fees, third-party fees, and non-fee expenses.

Lender fees include things such as origination fees, processing fees, and other administrative costs that the lender will incur in the process of providing you with a mortgage.

Third-party fees are also incurred during the process of providing you with a mortgage, but these derive from companies other than the lender. These include appraisal, title, and recording fees.

Keep in mind that professionals such as appraisers will be paid before they perform their services, so you will need to pay this amount between the time you sign the contract and your closing date. Title fees will be paid at closing, and often are set by the seller’s side of the transaction.

Non-fee expenses

Non-fee expenses include homeowners insurance, property taxes, and mortgage interest. Before closing, most lenders will want to see a receipt showing that you have homeowners insurance for the 12 months after the date of closing.

Property tax charges will vary by state and county. Lenders may want either back taxes or anticipated future taxes to be paid at closing. Mortgage interest will be paid on the date of closing, from that date to the end of the month. Depending on the size of the mortgage and the date the closing takes place, this could be significant.

Credits

There may be some relief through seller and/or lender credits. Before you make an offer on a property, find out what credits are available from the seller to help offset these costs.

Keep in mind that these credits absolutely cannot be used towards the down payment on your property.

It’s important to plan ahead for these expenses; your mortgage professional will explain how closing costs work.

One of the biggest challenges for home buyers – particularly first-time home buyers – is finding the funds for your down payment and your closing costs.

But take heart: There are credits from both sellers and lenders that may be available to you to help offset these costs.

Seller credits are often used to make people’s for-sale homes more attractive to buyers. The seller may list the home at a slightly higher price, but through a seller credit that reduces the amount needed at closing, he or she will differentiate the home from its competition.

As well, instead of making repairs on the property as requested by the buyers, the seller may offer a credit so the new owners will be able to do it themselves when and the way they want to.

Similar to seller credits, lender credits are used to encourage borrowers to select one lender’s mortgage over another’s. In exchange for slightly higher interest rates, lenders will credit borrowers toward their closing costs.

The credit can be applied to lender fees, such as origination fees, processing fees, and so on, but another great use of the lender credits is to cover tax escrows; this can result in significant savings.

Keep in mind the fact that neither seller nor lender credits can be used toward your down payment, as different mortgage programs, including both conventional and FHA programs, have minimum down-payment requirements.

These credits can save you money. To find out if you’re eligible, discuss it with your mortgage professional.