When shopping for a mortgage, it is important to take closing costs into account. While some closing costs are the same for all lenders and must be paid during closing week, different programs may add or reduce some of the burden borrowers face when closing on a home loan.
Let’s take a look at some major mistakes that could result in borrowers paying more than they need to in closing costs.
Property-tax funds may be collected in connection with an escrow account before closing. The required amount varies with the property’s tax obligation and the circumstances of the closing.
This can represent a significant upfront expense depending on the property taxes associated with a property. While everyone has to pay property taxes, finding a home in a low tax area can significantly reduce the cost of closing on a loan.
A lender may offer credits that cover applicable closing costs, although these credits generally may not be applied toward the down payment. Lender credits reduce the amount paid upfront but may be associated with different loan pricing, including a higher interest rate. A larger credit may therefore lower cash due at closing while increasing the loan’s longer-term cost.
Ask the lender for written scenarios with and without credits. Compare the interest rate, lender charges, cash to close, and longer-term cost rather than evaluating the credit by itself. This comparison can help first-time buyers and other borrowers decide whether the upfront reduction fits their plans.
Lender credits are different from closing-cost or down-payment assistance. Depending on where the property is purchased, there may be programs available, but eligibility and any repayment, occupancy, or length-of-residency conditions vary by program.
The seller of a property may agree to provide concessions toward eligible buyer costs. These concessions are optional, can reduce the buyer’s upfront expense, and are subject to the applicable loan program and transaction requirements.
In addition to closing cost support, a seller could also provide appliances or other items that can further save buyer money during and after the purchase is finalized.
A home buyer can save a lot of money by taking simple and common sense actions. By doing research into cost saving programs and credits toward closing costs, those who may have felt that home ownership was beyond their reach may be able to achieve their dream. To learn more about closing costs, you may wish to talk to a mortgage professional in your area.
Sammamish Mortgage can help. We serve clients across Washington, Idaho, Colorado, Oregon, and California. Since 1992, we’ve been providing several mortgage programs and products with flexible qualification criteria to borrowers across the Pacific Northwest. Visit our website to get an instant rate quote or to use our online mortgage calculator. Or, reach out to us if you are ready to get pre-approved for a mortgage.
Closing costs can increase when property-tax amounts, escrow funding, lender charges, loan pricing, or other transaction expenses differ from earlier estimates. Ask the lender to explain each change and compare the updated cash-to-close amount with prior disclosures.
Some amounts may change if the loan or transaction details change. Review any revised disclosure carefully and ask the lender to identify what changed, why it changed, and how it affects the amount due at closing.
Property-tax funds may be collected before closing as prepaid or escrowed amounts. The amount depends on the property’s tax obligation and the timing and circumstances of the closing.
A lender or settlement provider may collect funds for upcoming property taxes in connection with an escrow account. Properties with larger tax obligations can therefore require more cash upfront.
A lender credit is an amount the lender applies toward eligible closing costs. It reduces the borrower’s upfront expense but may come with different loan pricing.
They can. A larger lender credit may be associated with a higher interest rate, reducing cash due at closing while increasing the loan’s longer-term cost. Compare written scenarios with and without credits.
Compare the interest rate, lender charges, cash to close, and longer-term borrowing cost for each option. Evaluating the credit alone does not show its full financial effect.
The permitted amount depends on the applicable loan program and transaction requirements. Seller concessions are optional, so the seller must also agree to provide them.
The buyer can ask about lender credits, negotiate seller concessions, and research available closing-cost assistance programs. Each option may affect loan pricing or include eligibility, repayment, occupancy, or residency conditions.
Yes. Depending on the program, assistance may include occupancy or length-of-residency conditions, along with eligibility or repayment requirements. Review all program terms before relying on the funds.
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