In addition to any downy payment needed, you will also need to plan for closing costs when purchasing a home. Although no closing cost options exist, understanding how closing costs are paid for is an important part of the home buying process.
Closing costs can be as high as 6% of the sales price in some areas. If you purchase a home for $150,000 with a no money down home loan, you may still have to pay the closing costs. This can be as high as $9,000 in more expensive regions of the country, such as, New York, New jersey, or California. In summary, having a no money down home loan does not always translate into no money due at closing. The good news is that ! by following these steps, you can avoid paying closing costs and obtain a true “No Money Down”, home loan.
Negotiating seller concessions into the home sales price is a great way to avoid paying closing costs. Seller concessions mean that the seller will pay a portion or all of the buyers closing costs. Assuming a seller would like to receive $200,000 for a property, most government home loan programs allow up to 6% seller concessions to be included in a sales contract.
Rather than paying $200,000 for the home, you can pay $212,000 for the home with $12,000 back for seller concessions. If you are doing 100% financing and the seller is paying $12,000 of your closing costs, it is likely that you will not have to bring any money to closing. Seller concessions are very popular in some less competative parts of the country. By offering seller concessions, a seller can attract a larger pool of home buyers to theur property.
Some banks offer/advertise a no closing cost program. The truth is, there are still closing costs. Attorneys need to be paid, you still need to purchase homeowners insurance, and the appraiser is still getting paid. The only difference is that the bank is paying these closing costs and to make up the expenses, the bank typically increases the interest rate to cover the cost. By increasing the interest rate, the bank increases revenue so that they can afford to pay the closing costs.
This can be a good option but it can also be a bad option. The margin offered on a given interest rate will determine if this option makes sense.
Interest rates change daily. One day, you may be able to increase the rate by .5% and have the bank pay 2% of the loan amount back towards closing costs and other days, raising the rate a full percent will only allow the bank to pay .5% of the loan amount towards closing costs. The only true way to know if this is a good financial option is to discuss the options with your bank. A professional mortgage consultant will show both options. They will compare how much you would pay over the life of the loan with a higher interest rate vs financing closing costs with a lower interest rate (Seller Concessions).
Some banks offer discounted closing cost options. This cna be a great option for a well qualified client. This will not eliminate closing costs entirely as only 15% of the closing costs are typically charged by the bank, but it can be additional savings. Ask you bank if they offer discounted closing costs.
By understanding your options and working with your mortgage professional you will be well prepared to purchase a home. We know our clients do not like surprises so we make sure to discuss closing options, up front, with all of our potential home buyers. If you or a family member are interested in purchasing a home, give us a call at (518) 324-5544. There is no cost to you and we typically approve clients within 24 hours of an application being received.
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