Buyer’s Closing Costs

Ideally, each party will pay their own closing costs associated with the purchase and the sale of a home, but they can be negotiable based on lender requirements and market conditions.

The fees are usually paid at the settlement and will be itemized on the closing statement. Buyers should be aware of them before contracting for a home. If a mortgage is involved, the lender will want to verify that the borrower has ample funds available at closing to pay for them.

Buyer’s closing costs can range between two to five percent of the sales price. The real estate agents should be able to give you an estimate of what a buyer can expect. The most accurate estimate will come from the lender at the time the loan application is made. They may or may not include other fees that will be charged to buyers by the title or escrow company.

Buyers are required to be provided a standard Closing Disclosure form at least three business days before the loan closing date. This document will include the loan terms, estimated monthly payments, loan fees and other charges. This can be compared to the loan estimate provided by the lender when the application was made.

Fees connected to a mortgage

Loan origination fee … This is the lender’s fee for processing the mortgage application. It can vary in amount but typically, it can be one percent of the mortgage amount. It may be possible to negotiate this fee into the rate of the mortgage.

VA funding fee … This is a fee charged to the veteran for closing the loan. It can be paid in cash or rolled into mortgage. The amount is based on the status of the veteran, their down payment and whether they have had a VA loan before.

Appraisal … This is a fee paid for a licensed appraiser to determine the value of the property. It validates that the mortgage will not exceed the purchase price and that the buyer has enough down payment based on the type of mortgage applied for.

Attorney fee … This fee is charged to ensure that the legal documents are drawn properly so the lender will have an enforceable mortgage. It is not for legal representation of the buyer.

Discount points … A point is one percent of the mortgage. These fees are considered prepaid interest and can be used to adjust the interest rate on the mortgage.

Lender’s title insurance … This coverage insures that the lender has an enforceable lien from title claims on the property. This policy is usually issued in connection with an owner’s title policy and is priced separately.

Mortgage insurance … Most loans made in excess of 80% of loan to value require mortgage insurance to protect the lender from loss if the property must be foreclosed on. There is no mortgage insurance requirement on VA loans. FHA mortgage insurance premium has two parts. There is an up-front charge of 1.75% of loan amount and then, a monthly amount which is added to the payment. Conventional loans usually collect the first month’s premium in advance and subsequent amounts are rolled into the mortgage payment.

Recording fees … These are fees that are for filing the legal documents with the municipal or county recorders. The documents would include the mortgage and the deed.

Survey fees … This fee is necessary, based on requirements of the lender, to verify property lines, shared fences and driveways and to identify any other encumbrances.

Underwriting fee … This is a separate fee that covers the research and determination that the entire loan package meets the lender’s requirements.

Fees required by mortgage for escrow account

Property taxes … Lenders can require two to three months taxes to be held in escrow so that there will be enough to pay them in full 60 to 90 days before they are due.

Property insurance … Insurance is paid in advance and the annual premium will be due at closing. The lender further requires one additional month’s amount so that one month prior to the anniversary date, the premium can be paid for the renewal.

Flood insurance … The lender may require flood insurance on the property based on their assessment of the location in a flood zone or proximity to a flood zone.

Fees connected to purchase of a home

Settlement fee … This is the buyer’s portion of the fee paid to the title or escrow company, or attorney who handles the closing of the sale.

HOA Fee … Home Owner Association fees are usually paid in advance by the owner. They are prorated at closing for the amount paid that the seller does not benefit from.

Owner’s Title insurance … This coverage insures that the buyer, the new owner, received clear and marketable title from the seller. It will protect the new owners’ interests should they be challenged. Even though it may not be required, it is recommended.

Pest inspection … A pest inspection by a licensed exterminator can be required by a buyer to determine if there are active termites or termite damage, dry rot or another pest infestation.

Property inspection … A home inspection conducted by a professional can be required to determine structural integrity of the property as well as all the systems in the home. It can include but not be limited to plumbing, electrical, roof, heating and air conditioning, appliances and other things.

Title search … Sometimes, title companies waive this fee when an owner’s title policy is issued. It can be customary that a separate fee is charged in addition to the premium for the title insurance.

Transfer taxes … When government taxes are required, these fees must be collected.

The Consumer Financial Protection Bureau is a U.S. government agency that makes sure banks, lenders and other financial companies treat the public fairly. You can download a Closing Disclosure Explainer from their website.

Debt-to Income Ratio

Debt-to-Income ratio is a tool that lenders use to qualify buyers for a mortgage and is an important factor in determining loan approval. It provides an indication of the amount of debt that a potential borrower is obligated to in relation to how much income they have.

Total monthly debts are determined by adding the normal and recurring monthly debt payments such as monthly housing costs, car payments, minimum credit card payments, personal loan payments, student loans, child support, alimony, and other things.

By dividing the monthly income into the monthly debt, you arrive at a percentage of the monthly income. Lenders actually look at two different ratios commonly called the front-end and the back-end.

The front-end ratio is the proposed total house payment including principal, interest, taxes, insurance, mortgage insurance if required, and homeowner association fees. Lenders generally don’t want these expenses to be more than 28% of the monthly gross income.

The back-end ratio includes the same items that are in the front-end ratio plus any other monthly obligations like the ones mentioned earlier. Lenders prefer to see this ratio not to exceed 36% of monthly gross income but some lenders may extend that to 43%. Borrowers obtaining an FHA mortgage might also be allowed an even higher back-end ratio.

If a borrower had $8,000 monthly gross income, their proposed house payment should not exceed $2,240 or 28% of their monthly gross income. Then, their house payment and monthly debt should ideally not exceed $2,880 or 36% of their monthly gross income.

For the sake of an example, let’s say that their monthly debt was $900. That would only leave $1,980 for the maximum house payment. The monthly debt became a limiting factor affecting the house payment.

In addition to determining whether the buyer qualifies for the mortgage, it could affect the interest rate. Having good credit and having the proper ratios can result in being approved for a mortgage. On the other hand, if the debt is on the upper side of an acceptable range, the lender may charge a higher interest rate for the addition risk of a marginal borrower.

While the math is not difficult to come up with your ratios, it is not necessarily a do-it-yourself project. A trusted lending professional can assess your situation and give you an accurate picture of what price home you can afford and the rate you can expect to pay.

Both things are important to know before you start looking at homes and especially before you contract for one. All lenders are not the same. Call me to get a recommendation of a trusted mortgage professional who specializes in the type of mortgage you want. Download this FREE Buyers Guide.

Did You Miss Your Chance This Year?

Even if home prices have risen, you still may be in a better position to buy.

If for whatever reason you decided not to buy last year, you may actually be better off now. As you can see, even though a property may have increased in price by 6%, with interest one percentage lower, your total and monthly payments may actually be lower.


The information contained, and the opinions expressed, in this article are not intended to be construed as investment advice. Rolanda Wilson and Better Homeowners do not guarantee or warrant the accuracy or completeness of the information or opinions contained herein. Nothing herein should be construed as investment advice. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision. Rolanda Wilson and Better Homeowners. will not be liable for any loss or damage caused by your reliance on the information or opinions contained herein.

Think You Can’t Buy a House? Dig Deeper

Instead of relying on second-hand information, spend some time with an experienced, reputable real estate professional who can give you the facts.

There are thousands of people who believe, for one reason or another, that they can’t afford to buy a home right now.  Some people  may not be able to for any number of reasons. However it may be surprising that some people who actually can qualify to purchase a home don’t, solely because they received some bad information when they first started looking.  It’s worth digging a little deeper to find out the facts.

John and Karen have been renting a home for the last five years at $2,000 a month.  During that time, the value of the home they were renting went up by $30,000 in value, while the unpaid balance on the mortgage decreased by $18, 400.  Even though they were fortunate enough to have their rent remain constant over those five years, they missed out on nearly $50,000 of equity that the property’s owner realized instead of them.

Also, with today’s low interest rates, it’s quite common for a mortgage payment to be lower than what a tenant is paying for rent for a similar property.  So, in this example, John & Karen also paid more over that period than they would have if they were making house payments and getting the benefit of equity growth.

It is true that not everyone can afford to buy a home.  A down payment and closing costs may be too much of a burden at this time.   Buyers also need to have steady income and good credit to qualify for the mortgage.  But if you are interested in buying a property, why not talk to a real estate professional to find out if there is a way to make it work.

There are many low-down payment mortgages available, including 100% financing for qualified veterans and USDA eligible buyers.  Additionally, while it may be difficult to find sellers willing to pay all or part of a buyers closing costs, lenders do allow it.  It is a matter of finding the willing seller who can see the opportunities they may receive from selling their property at that time..

The source of a down payment could be a gift from a family member, as long as there is no repayment expected.  Many parents or grandparents are willing to help a relative get into a home.  Funds for a down payment may be available as loans or withdrawals from qualified retirement programs like IRAs or 401k plans.  It’s worth investigating options you may have based on the retirement programs available to you.

Good credit is necessary to qualify for a loan but buyers should not assume that theirs is not adequate.  A trusted mortgage professional can assess a situation and may be able to suggest some actions that will not only raise your score enough to be approved for a loan, but may possibly even raise the score enough to qualify for a better interest rate.

There are a lot of misunderstandings about whether a person can or cannot qualify for a home at this time.  Instead of relying on word-of-mouth information or random facts on the Internet, spend some time with a real estate professional who can give you the facts, assess your situation and help you get in touch with a trusted mortgage professional.  

If after reading this, you realize you may have been overlooking your actual buying power, call us at 510. 244.0085 to schedule an appointment so we can help you dig deeper to determine your true buying power.

Want more information? Download our Buyers Guide now.

So Many Low Down-Payment Mortgage Options!

There are so many types of mortgage that you can apply for. But, you may find yourself asking, “What do I qualify for?” “Are there any hidden charges?” “Is this really the best choice for me?”

On top of that, so many companies advertise that THEY have the best, low down-payment option available. If you’re confused because there are too many options, let’s talk. We’re here to help!

Low Inventory Requires a Buying Strategy

Hopefully, you’ll never have to deal with losing a home to another buyer and these tips might make the difference.

  1. Get pre-qualified for a mortgage
  2. Work closely with your real estate agent
  3. Sign up for listing alerts with your agent
  4. Have a home search app on your mobile phone
  5. Be prepared to move quickly when you find a home that you like
  6. Make a competitive offer
  7. Keep contingencies to a minimum
  8. Feel comfortable and confident with your offer