Buyer's Guide to Closing Costs Credits


Buyer's Guide to Closing Costs Credits


Closing Costs ... people are always interested in them.


HOW they can be paid, borrowed, financed ... and possible credits for Closing Costs that might be available to them from their Sellers or their Lender. 

I find that many of my new clients have preconceived notions about Closing Costs.  Or they're just plain confused by them.

And it's easy to understand why this can be the case.  The differing loan types ... Conventional, FHA, VA, USDA, Jumbo loans ... all have varied Rules and Guidelines.  It can be tough for new Borrowers to wrap their head around all of it. It's a lot to digest. 

Adding to the confusion:  In some cases, the amount of down payment made on the purchase can affect the amount of allowed credits received from a Seller.  

Yep.  See what I mean?  It can seem a bit overwhelming. 

That's why, when I hold my initial conversations with Borrowers regarding Closing Cost options, I begin at the beginning ... with the basics.  That means an explanation of what Closing Costs are.  

My explanation always includes a list of those cost items that are "Pre-Paid" ... meaning they are funds needed to Close on a Conventional Loan in addition to the Down Payment made.

In previous articles, I've discussed the various programs available for Home Buyers with Conventional Financing, but suffice it to say ... 3%, 5%, 10%, 15%, and 20% Down (or more) programs are prevalent today.  

For those making Investment Property purchases: 

The rules regarding the Seller's contribution towards Closing Costs is straightforward and clear cut.  The Seller can contribute no more than 2% of the Sales Price, if negotiated into the Contract. 

Here's an example:


Purchase Price = $200,000 
 X  2% 
=
Seller-Paid Contribution of $4,000

It must be noted:  It's possible that the Lender can credit back some or all of the Closing Costs, either in the form of a lump sum or a percentage (%) of the Loan Amount.  I've found that typically my Borrowers will absorb or accept a higher interest rate as a trade-off for receiving that Closing Cost credit.

In NO case, can Closing Costs owed by a Borrower, be "rolled into" the loan amount on a Conventional Loan.  Certain program costs can be allowed when utilizing FHA, VA, and USDA financing, however.

For Owner-Occupied purchase transactions, the allowed Seller-paid Closing Costs vary according to the Down Payment percentage (%).  (Conversely, the Loan-to-Value (LTV) Percentage).

Those variations are shown in the table below: 


These stated credits can be used to offset (pay for all or part of) the true Closing Costs related to:
  • Title Fees
  • Lender
  • Appraisal Fee
  • Attorney Fee
  • Credit Report
  • Flood Certification Fee
  • Points
  • Etc. 
... as well as pre-paid items, which generally are set aside for:
  • Real Estate Taxes
  • Homeowners Insurance 
  • Interest Charges
  • Home Owners Association Dues (if applicable)
  • Mortgage Insurance Premiums (initial or renewable

As you can tell from the info provided above, there are many scenarios available for Buyers' consideration prior to their making a request for Seller-paid Closing Cost assistance.  

Each Buyer has their own individual and unique finances, needs, and circumstances that contribute to the final outcome.  I will (or your own Lender willconduct a thorough analysis of all options available to you ... and then discuss them with you.  Once that is completed, you'll be able to make a sound decision regarding your Closing Cost request.

Buyers need to know:  It's almost impossible for Buyers to go back and ask for Seller-paid Closing Costs assistance AFTER a Contract has been signed.  Having your discussion with me (your Lender) and your Realtor ... proactively, early, prior to entering into Contract is vitally important and wise.

Need more info?  Have questions regarding your Chicagoland home buying and financing?  Let's talk today!



    
    * Hoping to Buy or Refinance a Home in New Lenox or elsewhere in the Chicagoland area? Contact me! I'll put my 40+ years of Mortgage experience and expertise hard to work on your behalf.
     I'm easily found at:


Gene Mundt

Mortgage Originator - nmls #216987 - IL Lic. 031.0006220 - WI Licensed


American Portfolio Mortgage Corp.
nmls #175656

Direct: 815.524.2280
Cell or Text: 708.921.6331
eFax: 815.524.2281

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Gene Mundt, Mortgage Originator, an Originator with 40+ years of mortgage experience, will offer you exemplary mortgage service and advice when seeking: 
Conventional, FHA, VA, Jumbo, USDA, and Portfolio Loans in Chicago 
and the greater Chicagoland region, including: 
The Lincoln-Way Area, Will County, (New Lenox, Frankfort, Mokena, 
Manhattan, Joliet, Shorewood, Crest Hill, Plainfield, Bolingbrook, 
Romeoville, Naperville, etc.), DuPage County, the City of Chicago, 
Cook County, and elsewhere within IL & WI.

Referrals are Appreciated and Welcomed! 
















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