Understanding the closing cost

It’s been a year of eating Top Ramen, watching only Netflix and avoiding all social interaction but you sacrificed, you laughed, you cried and now you have your minimum down payment ready for your new home.

You walk into your local mortgage office (keep it local!) with that smirk on your face that only you and your wife recognize. Right off the bat you announce you have the down payment money and right off the bat you get asked, “you also have the closing cost, I presume…?”

Closing cost? What!? You mean everyone in this process doesn’t work for free?

Let me tell you, not only do they not work for free, some work for more than others! There are two sections of cost when referring to the closing cost of a home loan. One is recurring closing cost; the second is non-recurring closing cost.

The first includes items like your pre-paid property taxes, hazard insurance and that first payment that you don’t send, you know, the one that everyone thinks is free, it’s not.

The second section is the true cost of the loan. The title company’s fees, the bank fees, processing fee, appraisal and any other fee associated with the purchase of your new home.  Finding out about these fees is important because these fees can range from person to person company to company. The total fees along with the interest rate are what determine the cost of your home loan; therefore, it is much easier to compare pricing between banks and brokers. You will find that some brokers (Prime Home Loans) have lower cost loans than the local bank. This is my article after all. The additional service a broker can provide is topic for a future article so let’s move on.

So now you’re thinking, gee thanks for the info mortgage guy but I’m ready to buy now and I refuse to eat one more cup of that Ramen! There are a couple of different ways you can still buy your home and get money for closing cost. The obvious solution and probably the most courageous is asking a relative for a gift. Sorry but I had to mention it for our more fortunate readers. The rest of you read on.

Negotiating with the seller to pay your closing cost is a good way. Remember everything is negotiable regardless of what type of housing market we are in. You can also offer the seller additional money above their asking price and ask for that additional money to be credited back for your closing cost. Keep in mind there is a limit to how much you can give and get but closing cost more often than not can be completely covered this way.

Another alternative is your mortgage bank. Brokers have the ability to have the bank pay a premium amount of money, which you can use for your closing cost, by increasing the interest rate. Your interest rate does increase and therefore your payment increases but often times the increase in payment is minimal.

More importantly, you get a home, you still watch Netflix but now you watch it with your friends in the comfort of your own home and all of a sudden Top Ramen doesn’t taste so bad.