OK – you made the decision to buy a home! You found a broker and realtor to work with – and your broker wants to do a “Pre-Approval”. One thing they will usually ask for – I know I do! – is 60 days worth of bank statements from accounts you will be using to qualify.
So, exactly how much will you need to buy that home you are dreaming of?
Even if you are a Veteran getting a VA loan with no money down – there may still be costs that come up that you have to cover in order to get to the closing table and get those keys in your hand.
First – here is an article from Zillow.com talking about Closing Costs:
To put this in plain English – let’s use a fictitious example… we’ll call him Bill. Bill is buying a home with FHA financing in Cook County, IL, and is putting 3.5% down payment. The home he is buying is $200,000.
How much can Bill expect to pay to get closed and keys in hand?
Using simple math – you would think $7,000 plus closing costs (which would normally fall between 2-5% of the purchase price).
BUT – couple things to remember…
- Seller can pay some closing costs! – That is correct, you can negotiate to have some of the closing costs come out of the seller proceeds. Depending on how much equity the seller has, they may or may not be able to provide much in the way of seller concessions, so keep that in mind if they say NO.
- Earnest Money – or what we call EMD – this is money you pay up front to show you are serious about entering into the contract phase.
- Tax Credits – not ALL counties are like this, but in some parts of the country (like Cook County, IL) property taxes are paid in arrears. What this boils down to is that you may get a credit for taxes that were already paid by the seller, depending on when taxes are due and when you are closing – and that can offset how much you need to close. The title agent can typically verify for us roughly how much of a credit may be applied to your transaction.
- Gift Funds – If you are getting a $5,000 gift from mom, OR if you are buying from family and they are providing a gift of Equity – that can certainly lower how much you need at closing.
- Reserves – depending on the lender and Bill’s credit situation – reserves may be needed for a full approval and closing. Not common on a government loan, but it is known to happen. (this is normally going to be covered in depth during the pre-approval process FYI)
- Pre-Paid items – some things may be paid for outside of closing… example would be paying for a home inspection with your credit card. You wouldn’t incur a second cost for that at the closing table, obviously.
As you can see, there are a lot of factors at play to get to that bottom line of – “How much do I need to bring to closing?”
By addressing as much of this as possible during our pre-approval phase with a home buyer, we can make sure that we are all working towards the same goal of closing on the purchase instead of finding out in the 11th hour we do not have enough money to close.
My simple rule of thumb is – every transaction is different. Once we get a client under contract on a property, find out if we have seller paid closing costs in there, tax credits, etc… we can then have a pretty accurate number to work with when saying – you need to bring THIS much to closing.
Let’s get Closing!!!
Mike Heitz – Mortgage Loan Originator – NMLS 323846
A & G Mortgage Solutions, Inc – Company NMLS 149977
Phone: 708-409-8000 Fax: 708-409-0260
10450 W. Cermak Rd Westchester Il 60154