When you buy a house there are three sets of costs you will incur (other than your down payment)…
1) Closing costs. These are mortgage company fees, title fees, appraisal, survey, recording fees, etc. Typically these fees will add up to around 1% to 2% of a loan.
2) Prepaid taxes. For a purchase loan the lender will collect 3 months of taxes and put into your new escrow account.
3) Prepaid Insurance. You will have to purchase a full 1 years insurance policy to be paid for at closing. The lender will also collect 3 months of insurance to be put into your new escrow account at closing.
When you add the prepaid taxes and insurance together they usually come to another 1.5% to 2% of a loan amount – depending on the taxes in your area.
…So, combined between the closing costs and the prepaid taxes and insurance you are talking about 3% to 4% of the sales price. This is additional money you have to bring at closing to buy your house.
…and this is on top of your down payment (assuming you are using a loan program with a down payment).
The idea here is to get someone else to pay your closing costs and prepaids at closing.
There are five different possibilities as far as who can pay these costs. I’ll go through each one here…
1) You. …You are the borrower and you can pay these expenses yourself. Although I wouldn’t recommend it.
2) The seller. In my opinion this is your best bet. You simply ask the seller to pay these costs at the time you make your offer.If you are using a normal Texas Real Estate contract – you would write in the seller help amount on page 5 under section 12.The reason it’s your best bet is that it’s the best combination of lowest rate, and least money out of your pocket at closing.
3) Gift. You can get a gift from a family member to pay your closing costs. The guidelines are different with each program for gift giving – so check with me before you attempt to go this route to make sure it’s appropriate for your loan program.
4) Grant. If you have access to a state or government grant program you can use this to pay these costs. There are some programs in Texas that you can use, and I have access to. Check with me to see if you qualify for these programs.
5) Loan officer and/or realtor. You can get help with paying your closing costs and prepaid expenses from the loan officer, and the realtor can help as well.
If you or someone you know has a question about how to structure purchase financing please give me a call or shoot me an email. I want to help you!
That’s it for today!
Have a good day! …and thanks for reading.
Brett
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