Jesus M. Fernandez, REALTOR® 786-553-7530
Morris Williams Realty: 888-326-3949
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WHAT ARE TYPICAL CLOSING COSTS?
Understanding and anticipating your purchasing costs, should not be overlooked!
Too often, many buyers forget to take into consideration the costs of buying, which can impact their ability to purchase their new home. Learn below, why you need to consider your purchasing costs to avoid being priced out.
"An investment in knowledge
pays the best interest."
When purchasing your property, you will incur certain buying expenses, which should be taken into consideration, to avoid any last minute surprises. Perhaps, the largest expenses will be your downpayment, your pre-paid homeowner's insurance, your title insurance policy and the lender's title policy. Below, you'll learn what you can negotiate with the seller and your lender, so you have a better understanding of your of the pros and cons of negotiating with each
When it comes to purchasing, perhaps your biggest expense will be your downpayment. As a buyer, there is no upper limit to the amount of your downpayment, for any type of property. The minimum downpayment requirement will depend on the type of property you are purchasing. With an FHA loan for instance, you can purchase a single family home with as little as 3.5% downpayment. On the other hand, if the property you are purchasing is a condominium or the governing body operates under this type of management, it may require a 25% downpayment. On condo associations, your lender will be able to tell you what kind of a downpayment you need, depending of the condo association's qualifications.
If you apply for a conventional loan to purchase a single family, you can typically purchase with a minimum 5% downpayment. Some lenders may even offer conventional loans, with as little as 3% down. It is wise to shop around, so you can find a loan that works for your particular purchasing situation.
NOTE: All borrowers with less than a 20% downpayment, are required to purchase private mortgage insurance (PMI) by their lender.
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Reducing Closing Costs
Your closing costs will depend on what you can negotiate with your lender and the seller. Some sellers will offer to pay for 100% of your closing costs, if they get what they want for the property. Other sellers will offer either a dollar amount or a percentage of the purchase price to the buyer to offset the the buyer's acquisition costs. However, private sellers more often than not will rather make a concession on the purchase price than to pay for your closing costs. Typically, sellers will agree to pay part or all of the buyer's closing expenses in a buyer's market and are less likely to do so in a seller's market
We will advise you how to make a winning offer, regardless of market conditions and acquaint you with what is customarily paid by the seller and buyer in, under each market condition.
What do buyers typically pay for in a transaction?
Your other purchasing costs are related to items either you or the seller agree to pay, as part of the terms of the sales and purchase agreement and whatever concession your lender makes. These will be depend on the type of sales and purchase agreement used in the sale. The As-Is sales and purchase agreement, which is typically used in most transactions, does not set aside any monies for repairs, if deficiencies are found during the buyer's inspection, unless specified in writing. The residential Contract for Sale and Purchase on the other hand, has provisions in which you as the buyer can choose to have the seller set aside a dollar amount or a percentage of the sales price towards general repairs, the treatment and repair to damage caused by wood destroying organisms and costs associated to close open permits.
There are advantages and disadvantages related to the use of their one of these contracts when purchasing property. We can review the differences, so you can decide which contract type to use in your purchase.
What are the required costs I must pay for at closing?
Again, it will depend on what you negotiate with the seller. Unless the seller agrees to may the following, you will need pay for:
Taxes and recording fees on the promissory note and mortgage.
Recording fees for the deed and financing statements.
Property Survey or elevation certificate, if required.
The lender's title policy and endorsements.
Property inspection (not required but highly recommended).
Homeowner Association or Condo Association application fee.
Expenses related to the loan.
Homeowner's insurance* (typically 3 months are pre-paid at closing).
Flood insurance* (typically 3 months are pre-paid at closing).
Property taxes* (the amount will depend on the length of time left before property taxes are due).
You may also need to pay for the following if its part of the terms agreed to with the seller:
The municipal lien search.
The owner's policy and charges.
The owner's title policy premium.
* Most buyers prefer to escrow every month the cost of their homeowner's and flood insurance policies, along with their property taxes, to avoid making a lump sum payment when they are due. Certain lenders will require that you escrow for these expenses.
What items can I negotiate with my lender?
There are several items you can negotiate with your lender, depending on your credit worthiness or FICO score. Perhaps, the one that most buyers think of first, is the interest rate on the loan. Lenders will quote you an interest rate, based on your credit score, the property's location, the price of the property, loan amount, your downpayment, the loan type and the length (term) of years to pay back the loan. Some of these factors you may be able to control, while others are fixed and tied to the amount of risk exposure the lender will experience. Obviously, the better your credit score (700+), the amount of your downpayment (20% or more) and the length or term of the loan (15 years) will result in a lower interest rate. If your credit score is between 630 to 700 and you are purchasing with less than 20% for a term of 30 years, your interest rate will be slightly higher, because of the lender's predetermined risk exposure.
What can I realistically negotiate with my lender?
Lenders typically charge what is called and origination fee, for processing the loan. Some lenders will heavily discount this fee or not charge it at all, to earn your business. However, you need to compare the overall costs between different lenders, to make sure that you are getting a good deal. For instance, one lender may not change the origination fee, but will ask for a higher interest rate, while another may charge the fee but quote you a lower interest rate.
You may be able to lower your interest rate paying mortgage points, also known as discount points, which are fees paid directly to the lender at closing in exchange for a reduced interest rate. This is also called “buying down the rate,” which can lower your monthly mortgage payments. One point costs 1 percent of your mortgage amount, or $1,000 for every $100,000 you borrow.
What services can I shop for when purchasing and obtaining a loan?
Here is a list of the services you can shop for:
Property inspection (not required but recommended)
Survey Fee (may be waived if its recent)
Title Insurance Binder (may be negotiable with seller)
The Lender's Title Policy (may be negotiable with seller)
The Title Search (may be negotiable with seller)
The Settlement Agent Fee (Tittle company or Attorney)
What are the services I can't shop for when obtaining a loan?
Here is a list of the services you cannot shop for:
The Appraisal fee.
The Credit Report fee.
Flood Determination fee.
The Tax Monitoring fee.
Tax Status Research fee.
Who pays for the property taxes for the time I did not own the property?
Property taxes are prorated from January 1st, to the day of closing and are typically paid by the seller, as a credit to the buyer. The closing agent will make the final calculation prior to closing, and the amount will appear in the seller's settlement statement, which line by line shows all your expenses
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