Closing Cost

Many first time home buyers assume that a no down payment mortgage loan means that they do not have to pay anything at all at closing. It would be great if this were true but the down payment is only one component of the cost associated with buying a home. The other component is loan closing cost. Closing cost generally average 4.5% to 5% of the loan amount and may consist of any or all of the following: tax and home owner insurance prepaids, prepaid interest, attorney or title company fees, lender fees, title insurance, appraisal fee, inspection fees, flood cert, survey fee, recording fee, state or county taxes and fees.

The good news is that with some creative financing there are ways to get the amount of the closing cost that you actually have to pay out of your own pocket down to little or nothing. Below we have listed four ways in which to achieve this:

1. Get the seller to pay your closing cost - We have no down payment mortgage loan programs that will allow the seller to pay from 3% - 6% of your non-recurring closing cost. Nonrecurring closing costs are those costs that are paid on a one-time-only basis at closing. They include points, title fees, attorney fees, appraisal, transfer taxes, etc. When negotiating the purchase price try to get the seller to pay as many points as possible. 1 point is equal to 1 percent of the loan amount. Take for example a home that cost $150,000. You get a no down payment mortgage loan which covers the purchase price and your closing cost total $7500. The seller agrees to pay 4 points which amounts to $6000. This leaves you with a balance of only $1500 that you would need to come up with at closing. One way to induce the seller into paying you points is to offer him/her more than the asking price of the property. For instance if the selling price is $100,000 you can offer the seller $105,000 in exchange for paying 5 points (which equal $5000) towards your closing cost (the home would have to appraise for the higher selling price in order for this to work). You should have a good realtor capable of negotiating the desired terms on your behalf. If you do not already have a realtor give us a call when you are ready to start the home buying process as we know some realtors that are really skilled in the art of negotiating good deals for their clients and we will be happy to refer one to you. Just give us a call at 859-223-0937 local or 877-953-9927 toll free.

2. Accept a higher interest rate - In some cases you may be able to lower your closing cost by accepting a higher loan interest rate. If you are short on closing cost talk to your mortgage consultant to see if this is an option.

3. If eligible, obtain a 100% Plus Mortgage Loan - This type of mortgage loan allows you to finance 100% of the purchase price plus finance an additional amount (usually up to 3% - 7% more) to cover your closing cost. For example: Home purchase price = $200,000, Closing cost total $8650.00. Your loan amount with 103% financing is $206,000. This gives you $6000 to apply towards closing cost and leaves a balance of $2650 that you have to come up with at closing. The amount you have to come up with can be further reduced by getting the seller to pay you points at closing as suggested above. You will need to have really good credit with a minimum credit score of 680 - 700 to be eligible for financing above 100%.

4. Close your loan as near to the end of the month as possible - If you close on the 5th of the month you will incur 25 days of prepaid interest closing cost (assuming a 30 day calendar month). If you close on the 25th of the month you will incur 5 days of prepaid interest closing cost. So obviously the closer to the end of the month that you close the more you will save.

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