Today I’m joined by Nate Gafken from Hanover Mortgage to talk about two things: closing costs for the buyer, and down payments.
As a first-time buyer, or one that hasn’t bought a house in a long time, there is no specific rule of thumb when it comes to knowing how much closing costs are going to be. It can change depending on factors like what kind of price range you’re looking at, the type of loan you receive, and the mortgage broker you use. A broker offers quite a bit less in closing costs than a typical bank would, because the bank charges origination, processing, and application fees. Instead, they sell all of their loans at closing so the bank that buys the loan from them pays for that loan.
In addition to what we’ve already mentioned, there are also variables like inspections, appraisals, attorney’s fees, and title insurance. None of these are paid up front, but they will be collected at closing. In many cases, Nate discusses these variables ahead of time over the phone with the buyer as he is pre-approving them, or includes information about them in the pre-approval letter he sends to the buyer’s agent.
Regarding down payments, the good news is that you don’t need to pay 20% down anymore. You don’t even need to pay 10% down! Both the USDA and VA have different programs for first-time buyers that offer loans at 100% financing. They also have options at 3% down, and 5% down if you’re looking to do a conventional loan. What many people don’t know, in fact, is that you get just as good of a rate at 5% down as you would if you put 20% down. The only difference would be your private mortgage insurance (PMI), or insurance the bank charges you in case you default.
What it boils down to for closing costs, then, is that you need to talk to your lender or Realtor if you really want to get a good idea of how much they’ll amount to. As far as down payments go, you can start at zero down, or just buy the whole thing in cash!
If you have any more questions about closing costs or down payments, feel free to reach out to me by phone or email. I look forward to hearing from you!