How Much Money Is Needed for Closing Costs & Downpayment? 

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With few exceptions, home buyers need a significant amount of cash when purchasing a home.

There are closing costs associated with the purchase and the down payment.  

Closing costs cover a wide range of expenses that are necessary to secure the loan and to transfer the title from Seller to Buyer.

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The most expensive items lumped into the “closing cost” category are loan origination fees and discount points, title insurance, and state and local taxes. Loan origination fees are what the lender is getting paid to help process the loan. Discount points are what you may pay to bring down your interest rate. Generally speaking, paying one point at settlement (equal to 1% of the loan amount) will reduce your interest rate by one-quarter of one percent. This is optional, depending on your available cash and what monthly payments you will have for the life of the loan.

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Title insurance is a one-time purchase, made at closing, that protects you and your lender against legal claims made on the ownership of your new home. While rarely used, title insurance can save you from some very large legal fees if there is some type of claim on your title. Your lender will require you to purchase title insurance to cover them for the period of the loan. Purchasing your own coverage is optional, but highly recommended by most people in the real estate industry.

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State, county, and local taxes are also paid at closing. These costs are determined by each taxing jurisdiction and are based on the home's sales price. 

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Here are some other fees you may encounter at closing:

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• Property taxes - Sometimes the Seller has paid taxes ahead and you will be reimbursing them. You also may end up paying a few months of your upcoming property tax bill at closing.
• Escrow account setup - This helps fund the escrow account that the lender establishes to pay your property taxes and homeowners insurance in the future.
• Homeowners insurance - You will be paying your first year of homeowner’s insurance upfront. 
• Title and settlement fees - These can include a fee for the title attorney’s work, recording fees, title search fees, and other incidentals.
• Additional lender fees - These can include processing and underwriting fees, credit report and tax service fees, flood certification, and other incidentals.

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Early in the home buying process, your lender will provide a very close estimate of your closing costs. The lender should provide this information prior to applying for a loan. Once you complete the application for a loan, you will receive your official Good Faith Estimate. 

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Total closing costs can run anywhere from 2.5% to 6% of the sales price, depending on all of the parts that come together in any given transaction.

More Information On Closing Costs & Down Payments

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Down Payment and Closing Costs are funds wired a few days prior to settlement and include the earnest money deposit, put into escrow at the beginning of the home buying process.

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Down Payment

• FHA loans generally allow for a 3.5% down payment

• VA loans generally allow for 0% down

• Conventional loans allow 3%, 5%, and as high as needed

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Closing Costs: Roughly 3%-5% of total purchase price

• These include transfer and recordation taxes, loan processing fees, title work, title insurance, and more
• Keep in mind, many loans do not allow for more than 3% closing cost assistance towards closing costs. Ask your lender how much YOUR LOAN allows for

Miscellaneous Expenses

• Home Inspection, based on what is inspected add ons include termite and radon tests. It can vary dramatically depending on the size of the home and what is being inspected. Anywhere from $300-$800+
• An appraisal is required for your loan, roughly $400

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Heads up, when you get "pre-qualified" with a lender they do a hard pull on credit. It is recommended you do a max of 3 if you are shopping around for the best rates.

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Earnest Money Deposit (EMD): This is a sum of money, commonly between 1-3 percent of the purchase price of the home that is placed in a non-interest-bearing escrow account.

 The higher the EMD the more appealing your offer. This money is usually deposited within 3 days after contract ratification. 

This money goes towards closing costs. If funds exceed closing costs they will be credited back to you.

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Disclaimer: Please confirm all fees and costs with your lender. 

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How can we help?

The exclusive buyer agents at HomeBuyer Brokerage specialize in serving home buyers. Please reach out with questions at info@homebuyerbrokerage.com.