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How to Purchase a Home With No Out of Pocket Closing Costs

The Bad News About No Closing Cost Home Loans

I hate to break it to you but their is no such thing as a Mortgage without someone paying closing costs.  Someone has to pay the fee’s associated with purchasing the Real Estate.  For example just the Taxes due at closing to NY state and your county are shown below.  But don’t worry if you keep reading this article You will get some good news (Hint: you may not be the one to pay your closing costs).

Normally the Average closing costs on a Home Loan in the Plattsburgh NY(and all over the country) is about 5-8% of the purchase price. It is important to note that Total closing cost’s and Cash to close for the buyer can be two very different number’s.

What Other Fees Are Due At Closing?

For a Complete and detailed list Read this post.  For a even simpler way to Figure out your closing costs schedule a free consultation But for the DIY’er here is a list of the common closing cost’s associated with a loan.

  • Administration Fee: This covers the lender’s administrative costs. It’s usually about $995 but you some lenders (most online companies) charge a very high Admin fee and bait you in with a “super low rate”
  • Appraisal: This is paid to the appraisal company to confirm the fair market value of the home. The appraisal is conducted by a third party.Attorney Fee: This pays for an attorney to review the closing documents on behalf of the buyer or the lender. You have a right to choose which attorney will represent you. In New York an attorney is required to close a loan.
  • Attorney Fee: This pays for an attorney to review the closing documents on behalf of the buyer or the lender. You have a right to choose which attorney will represent you. In New York an attorney is required to close a loan.
  • Escrow Deposit for Property Taxes & Mortgage Insurance: Often you are asked to put down two months of property tax and mortgage insurance payments at closing. This money builds a buffer so that the bank can pay all future tax bills out of you escrow account.
  • Homeowners’ Insurance: This covers possible damages to your home. Your first year’s insurance is often paid at closing but you can also pay this prior to closing of you choose.
  • Property Tax: Typically, lenders will want any taxes due within 60 days of purchase by the loan servicer to be paid at closing.
  • Recording Fees: A fee charged by your local recording office, usually city or county, for the recording of public land records.
  • Transfer Taxes: This is the tax paid when the title passes from seller to buyer. This is paid to the town, state, or municipality in which you resides

The Good News About No Closing Cost Home Loans

As I mentioned earlier their is some good news about who has to foot the closing cost bill for your Plattsburgh Real Estate Purchase.  You may be able to get the Seller’s to Gift or Concede a part of the sales Price to go towards your closing Costs.  This is Called Seller Concessions.

USDA, VA, FHA, and Conventional Loans all allow Seller Concessions to be applied towards your closing cost.  Every loan program Differs with how much seller concessions you can use, USDA for example can use a full 6% concessions, which means you may be able to get a USDA  loan with no money out of pocket and no money due at closing.

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What Are Seller Concessions?

Seller-paid closing costs or seller concessions are money paid toward the closing on your behalf. Generally, but not always, this money is applied to the buyer’s closing costs.  Seller concessions allow you to legally roll the closing expenses back into your home loan.  As an example, let’s say your sellers want to net $200,000 on the sale of their home.  You might have the necessary down payment, but you need some assistance with closing costs.  Using this scenario, the seller may consider an offer of $205,000, contributing $5,000 towards the buyer’s closing costs.  This can be a win-win scenario for both buyer and seller. Due to increasing the purchase price by $5,000, the seller can still net their target amount of $200,000.  It helps the buyer, as they end up needing $5,000 less out-of-pocket at closing. Again, the buyer is essentially financing the $5,000 into the amount borrowed for their loan.  It is important to note the potential downside to this approach. The home must appraise for the necessary value needed for this scenario to work.  If the home doesn’t appraise for the amount that is needed, further negotiations between buyer and seller may be necessary.

Seller Concession’s versus points to pay for your closing costs.
Another way to have no out of pocket closing cost’s is by agreeing to have a higher interest rate or get charged points.  Basically the interest rate cover’s the closing costs.  But it is important to know the difference and how much out of pocket you will pay over the life of your loan to if you use Points to cover your closing costs versus Seller concessions*.

  1. 100,000 Loan Amount – Interest rate 5% – no closing costs = pmt of 537 a month – or 193,320 over the life of the loan
  2. 107000 loan amount – interest rate 4% – the 7k pays for the closing costs – 511 a month – or 183960 over the life of the loan.

Total savings using seller concessions is $9,360.    No if you plan to sell your home in the next 3 years, maybe a higher interest rate to pay for closing costs makes sense but if this is a long term investment, you should be thinking about long term savings and if you don’t have money for closing cost’s, seller concessions may be the right option for you.

I hope this blog post has provided some value for you and I appreciate you taking the time to read it.  Now instead of trying to learn every single detail about a mortgage how about you just give us a call and talk to a professional (518)324-5544.

You can also message our Facebook page and get any of your mortgage questions answered on your time, from the comfort of your own home.

For more information check out some of our most viewed recent blog posts
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*(Number’s are just based on Mortgage payment and interest rate, they do not represent a total mortgage payment)

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