Posts Tagged Closing Costs
Typically real estate agents will negotiate for the seller of a home to contribute up to 3% of the purchase price of the home towards the buyer’s closing costs. What many don’t know though is that this really is the minimum amount that can be contributed. This is especially important when purchasing a home under $150,000 because closing costs can many times exceed the 3% and the buyer will have to come to the closing table with money above their down payment.
The reason this happens is that there are both fixed and variable closing costs. Some fees are fixed regardless of the loan amount (such as underwriting, processing, tax fees, appraisal, etc.) and others are based on a percentage of the loan amount or purchase price (origination fee, points paid to buy down the rate, title insurance, property taxes, per diem interest, etc.). Those fixed costs represent a larger percentage of a smaller loan than they do a larger loan.
So to that end, here are the guidelines for allowable seller contributions toward closing costs:
- Primary residence
- 3% for LTV/CLTV > 90%
- 6% for LTV/CLTV > 75% to 89.99%
- 9% for LTV/CLTV < 74.99%
- Investment properties
- Seller can pay 100% of discount points and borrower’s non-recurring closing costs.
- Seller can provide an additional amount not to exceed 4% of the estimated reasonable value to assist the borrower’s payment of buydown points, prepaid expenses and funding fee.
Be sure your Realtor talks with your loan officer prior to putting an offer on a house. You want to make sure that enough seller concessions are negotiated to cover all your closing costs so that you don’t have to pay anything more than your down payment.
The Consumer Protection Bureau is thinking about overhauling the Good Faith Estimate they introduced just 18 months ago because even that seem too difficult for most to understand. Heck, it’s been a year-and-a-half and I’m just starting to like it and understand what the CPB was trying to get at with GFE2010. Of course it takes the government to take a 1 page Good Faith Estimate form and turn it into a 3 page document.
According to a survey conducted by ING Direct consumers polled about the new GFE had this to say:
- More than one in three (36 percent) homeowners described the GFE as being “complicated” or a “waste of time.”
- 68 percent of homeowners surveyed were unable to correctly identify the purpose of the “Title Services” charge on the GFE. In other words they didn’t know what they were paying for.
- 53 percent of homeowners spent 30 minutes or less reading and reviewing the GFE.
- One in ten (11 percent) homeowners never even looked at the document their loan officer sent them.
As a loan officer the things I get asked the most are:
- What is my interest rate?
- What is my payment?
- How much cash do I have to bring to the closing?
#3 is not addressed on the current GFE2010 or either of the two new documents being proposed. #3 is VERY important also. In many purchase transactions the seller pays all of the borrowers closing costs so all the borrower needs to bring to the closing table is their down payment. It would be good to know that, huh? I usually end-up sending the “Fees Worksheet” (the old Good Faith Estimate) along with the GFE2010 because it addresses all the above and breaks the fees out into easier to understand terms than the new one.
Unlike last time though, this time the CPB is asking our opinion on what is easiest to understand and what we’d like to see. Check-out the two finalist forms in PDF format then vote for the one that makes most sense to you. You can also add notes after you vote if you feel the form is missing some information you feel is important to the loan disclosure and shopping process.
See the new forms here:
- NY Times: Problems With New Good Faith Estimate Forms (mklenahan.wordpress.com)
- Good Faith Estimate – Effective or Not? (mortgageheathervt.wordpress.com)
- Problems With New Good Faith Estimate Forms
(New York Times)
- The GFE is a “waste of time”
(The HSH Blog)
Today HUD approved the $8,000 first-time home buyer tax credit for buying a new home to be used for down payment or closing costs with FHA loans. The catch: Finding someone to loan the money up-front against the forthcoming tax credit since no government agency wants to touch it. We’ll see how this pans-out. It could be a huge help for may first-time home buyers and those that haven’t owned a home in three years.