Closing costs ?

[rh71]

How much should I set aside for closing costs? Let's say I am putting down 15% on a $330k house (rest is a 30-year fixed rate mortgage). This is a for-sale-by-owner property so there won't be any real estate agent-type fees.

Am I looking at < $10k or more than that? What do "closing costs" comprise of? My lawyer will cost $1k, is that one of the "closing costs" ?

 

[Zorro]

330k Do you really care what closing cost are

 

[rufruf44]

Usually around 3% of the house selling price. This should cover title company fee, title insurance fee, appraisal fee, loan origination/discount points, mortgage interest from the closing date to the end of the month, attorney fee, etc,etc,etc. For a $330K house, my guess its that it will be around 10K as you expected.
One thing that I would suggest is to increase your downpayment to 20% if its all possible. I know its another 15K cash, but you will save all the cost of the PMI fee being tacked to your monthly payment, which is a requirement for any loan with less than 20% down.

 

[mithrandir2001]

You'll basically have three closing cost groups: mortgage costs, taxes and escrow/prepaid items. Mortgage costs include app fees, origination fees, doc prep fees, title search, title insurance, credit report, points, etc. Taxes are highly variable. In PA, each party pays 1% of the transaction amount in transfer taxes. Escro includes prepaying several months of property taxes, P&I and homeowner's insurance.

My house cost me $132,000 and I put 20% down. My closing costs were about $4500. Mortgage costs were about $2000, transfer taxes were $1320 and escrow made up the rest. Stuff like lawyer (which I didn't have) and housing inspection are extra.

There's a decent chance you'll spend over $10,000 on closing costs if you are buying a $330,000 house.

 

[mithrandir2001]

Originally posted by: rufruf44
One thing that I would suggest is to increase your downpayment to 20% if its all possible. I know its another 15K cash, but you will save all the cost of the PMI fee being tacked to your monthly payment, which is a requirement for any loan with less than 20% down.

Agreed, but, wow, 5% is $16,500: That's a lot of cash! 5% for me was only $6,600.

PMI is a wealth destroyer. I have a co-worker who pays $200 a month on PMI for a $225,000 mortgage. I think their LTV is like 95%, but still, $200 a month ain't chump change when the P&I is "only" $1400.

 

[rh71]

Ouch. I was playing with some numbers and I can barely afford it (with my fiance) at 15% down and $15k closing costs. So I was hoping you guys would say under $10k in closing costs so that we'd have enough $$ for furniture and whatnot. And this is already with a bit of parents' help. Unfortunately homes in Nassau County have gone up faster than any other in the country... so being that we want this location, we're stuck with inflated home prices. Now was our time too. At least we are getting nice mortgage rates now.

Oh yes... PMI insurance... we're prepared to pay $100/mo. for that. There's no way at this point that we can make the 20% down. Yeah, that 5% we're missing is an additional $16k. I heard that you can borrow for closing costs though (maybe try 20% down that way).

Anyway, good info... that's why I always look to you experienced ones for answers about things I'm doing for the first time in my life. Multiple opinions are better than one (my parents).

EDIT >> Taxes here will be approx $4500-$5000 annually.

 

[T2T III]

Am I looking at < $10k or more than that?

You should be looking at less. For example, here are some of the closing costs that I'm familiar with:

- 1 year of prepaid insurance on the property ($300 - $500 depending on your house and where it's located)
- Escrow for your insurance (I'm not sure how many months they'll want to collect)
- Loan origination fee: usually 1% of the loan amount ($2,600)
- Stamps and recording fees: (should be less than $200)
- Courier fees (if your lawyer has to use a courier to expedite any of the paperwork - should be less than $50)
- Property taxes: depending on when your county collects them, you could be responsible for putting between 3 and 6 months worth of property taxes into escrow. ($ = unknown because I'm not familiar with your taxes for your area)
- R.E. Interest: (you'll have to pay interest on your house for the period between the day you close and the end of the month) - however, the next mortgage payment won't be due until the end of the following month.
- Appraisal: ($250 - $350)
- Survey of the property: ($50 - $300: depending on whether they just need to update the plot that the current owner has, or if a full survey needs to be done.
- Misc. inspections: termite, etc. ($200 - $500: depending on which inspections are required)

Hmm ... that should about cover it unless I left anything out. Oh, keep in mind that you are entitled to the following items:

1) A copy of the HUD-1 (closing form) which your attorney / settlement agency has to provide to you 24 hours prior to the closing - if you request it.

2) A copy of your appraisal.

I would definately get a copy of the HUD-1 form prior to your closing. Reviewing it the night before the closing will allow you to get familiar with the various payments that you are responsible for. You can then ask the proper questions either prior to the settlement or during the settlement. Walking into a closing without reviewing the HUD-1 form isn't such a good idea. You'll be quite happy and emotional because of the excitement of owning your own property and you won't be in the right frame of mind for taking the time to review the items line by line. For my last two closings, I found mistakes on the HUD-1 form that resulted in me getting a check cut from the closing agency because of their miscalculations.

Good luck!!

 

[T2T III]

Oh yes... PMI insurance... we're prepared to pay $100/mo. for that. There's no way at this point that we can make the 20% down. Yeah, that 5% we're missing is an additional $16k. I heard that you can borrow for closing costs though (maybe try 20% down that way).

If the property values are increasing as quickly as you indicate, you should definately be able to get rid of the PMI within the first 12 to 18 months that you live there. As soon as your house appreciates at least 5%, you might want to start the process for getting the PMI cancelled.

 

[mithrandir2001]

Originally posted by: rh71
Ouch. I was playing with some numbers and I can barely afford it (with my fiance) at 15% down and $15k closing costs. So I was hoping you guys would say under $10k in closing costs so that we'd have enough $$ for furniture and whatnot. And this is already with a bit of parents' help.

Define "barely afford". That means different things to different people.

Take your estimated monthly payment (P&I + taxes + insurance) and divide it by your combined take-home pay. What is it? If it's pushing 40-50%, then you are buying too much house. My percentage is 23% and I enjoy the flexibility to own property and still afford to spend pretty freely. I qualified for a $200K loan, but I opted for one half that. I basically pay less than I would for an apartment. I can sleep well at night, and believe me, it's a wonderful feeling.

 

[T2T III]

330k Do you really care what closing cost are

Just because someone qualifies for a $330,000 home doesn't mean much. No, I'm not trying to discount or put down rh71 with that statement. Many places in the U.S. are facing extremely high real estate prices. The single family homes in my community are selling for $450K to $550K. These are not mansions by no means - they are just regular brick front homes with 2-car garages and 4 bedrooms - and maybe a deck in the back yard. Other than that, there are really no frills with these properties.

Ironically, I heard on the news today that 1 out of 8 homeowners is currently having trouble paying their monthly mortgage. Have people overpurchased on the homes they were buying? Do they have too much debt with their 2 SUV payments and their $3,000 a month mortgages? Lots of questions, but not many answers.

 

[T2T III]

My percentage is 23% and I enjoy the flexibility to own property and still afford to spend pretty freely. I qualified for a $200K loan, but I opted for one half that. I basically pay less than I would for an apartment. I can sleep well at night, and believe me, it's a wonderful feeling.

We've been in our place for over 10 years. Currently, our payment takes about 16% of our monthly income. Yes, our mortgage payment is much less than the rents in our neighborhood and I also sleep comfortably at night knowing that I'm not over-burdened by my mortgage. Plus, we've never outgrown our house which has been a good thing. Also, the equity at the current moment is more than double my current mortgage balance.

 

[mithrandir2001]

Originally posted by: wje
Ironically, I heard on the news today that 1 out of 8 homeowners is currently having trouble paying their monthly mortgage. Have people overpurchased on the homes they were buying? Do they have too much debt with their 2 SUV payments and their $3,000 a month mortgages? Lots of questions, but not many answers.

The WSJ reported today that the foreclosure rate is the highest it's been since they've been keeping those figures. It's not too hard to understand why. With WaMu pushing insane 3-month ARM loans, a modest couple earning 40K a year could probably buy a 250K house. But if that 40K income goes away - even for a month or two - the shockwaves can just bring a family's finances to shambles.

Many people are overextended because credit is rather easy and cheap to acquire. Heck, I just got a Target credit card and found out it has a $8,500 credit limit (even though I have $12,500 of credit available with two other CCs). I pay my cards off each month but I can see how easy it is to fall into heavy debt quickly. Look at auto sales. I think August 2002 broke an all-times sales record. Americans love 0% long-term financing. It is a great deal, if you can afford it. But even at 0% financing, a $35,000 SUV still carries a $600 monthly payment over 5 years.

 

[rh71]

Originally posted by: mithrandir2001

Originally posted by: rh71
Ouch. I was playing with some numbers and I can barely afford it (with my fiance) at 15% down and $15k closing costs. So I was hoping you guys would say under $10k in closing costs so that we'd have enough $$ for furniture and whatnot. And this is already with a bit of parents' help.

Define "barely afford". That means different things to different people.

Take your estimated monthly payment (P&I + taxes + insurance) and divide it by your combined take-home pay. What is it? If it's pushing 40-50%, then you are buying too much house. My percentage is 23% and I enjoy the flexibility to own property and still afford to spend pretty freely. I qualified for a $200K loan, but I opted for one half that. I basically pay less than I would for an apartment. I can sleep well at night, and believe me, it's a wonderful feeling.

Barely afford = 15% down payment + $15k closing costs just comes into what we have on hand right now.

The calculation you asked me to do... comes out to ~45%. We know we won't have much more than $1k per month saved AFTER mortgage (principle/interest/PMI) + expenses (food, utilities, etc.). Again, the price of our home is as low as we can go around this area without living in a run-down 3 bedroom with structural issues. This house is in move-in condition and is barely pushing 3 bedrooms. My inspector gave it an 8.5 / 10 which he considered excellent. I'm 24 and so far in my life experience, I think saving $1k/mo. after all is said & done, is acceptable. Unless I'm missing something that many of us here have missed as well. I hear about my coworkers (many of them have just bought houses) saying how they live on each paycheck.

Though, it is scary to think if one of our incomes go away, then we would absolutely be in trouble with a mortgage payment. We're both in IT and the job opps just aren't that plentiful at the moment either (should anything happen), but we feel confident that we're in solid positions to go through with this purchase.

Pics for house (that's obviously their stuff in the pics).

 

[isasir]

Originally posted by: rh71
Ouch. I was playing with some numbers and I can barely afford it (with my fiance) at 15% down and $15k closing costs. So I was hoping you guys would say under $10k in closing costs so that we'd have enough $$ for furniture and whatnot. And this is already with a bit of parents' help. Unfortunately homes in Nassau County have gone up faster than any other in the country... so being that we want this location, we're stuck with inflated home prices. Now was our time too. At least we are getting nice mortgage rates now.

Mind if I ask where in Nassau County? I'm 23 right now, but I can't imagine myself being able to afford to buy a house in Nassau County in a few years, even tho' I live here now. BTW, don't forget to apply for the STAR program.

 

[rh71]

Originally posted by: RishiS

Originally posted by: rh71
Ouch. I was playing with some numbers and I can barely afford it (with my fiance) at 15% down and $15k closing costs. So I was hoping you guys would say under $10k in closing costs so that we'd have enough $$ for furniture and whatnot. And this is already with a bit of parents' help. Unfortunately homes in Nassau County have gone up faster than any other in the country... so being that we want this location, we're stuck with inflated home prices. Now was our time too. At least we are getting nice mortgage rates now.

Mind if I ask where in Nassau County? I'm 23 right now, but I can't imagine myself being able to afford to buy a house in Nassau County in a few years, even tho' I live here now. BTW, don't forget to apply for the STAR program.

Heh, outsiders will laugh at the name - Hicksville (the dude's name was Hicks). As you may know, it's not even one of the best towns in Nassau. I'm in Plainview now and quarter-acre split-level / colonial houses here easily go for $450k+. We were looking around in the $275k-$300k range and all we saw were C R A P - maybe only those who didn't care for their homes wanted to get rid of them. We were asking ourselves how people could actually live in places in such conditions. Anyway, the STAR program will cut about $500 off taxes annually - it'll be one of our priorities.

 

[mithrandir2001]

Originally posted by: rh71

Originally posted by: mithrandir2001

Originally posted by: rh71
Ouch. I was playing with some numbers and I can barely afford it (with my fiance) at 15% down and $15k closing costs. So I was hoping you guys would say under $10k in closing costs so that we'd have enough $$ for furniture and whatnot. And this is already with a bit of parents' help.

Define "barely afford". That means different things to different people.

Take your estimated monthly payment (P&I + taxes + insurance) and divide it by your combined take-home pay. What is it? If it's pushing 40-50%, then you are buying too much house. My percentage is 23% and I enjoy the flexibility to own property and still afford to spend pretty freely. I qualified for a $200K loan, but I opted for one half that. I basically pay less than I would for an apartment. I can sleep well at night, and believe me, it's a wonderful feeling.

Barely afford = 15% down payment + $15k closing costs just comes into what we have on hand right now.

The calculation you asked me to do... comes out to ~45%. We know we won't have much more than $1k per month saved AFTER mortgage (principle/interest/PMI) + expenses (food, utilities, etc.). Again, the price of our home is as low as we can go around this area without living in a run-down 3 bedroom with structural issues. This house is in move-in condition and is barely pushing 3 bedrooms. My inspector gave it an 8.5 / 10 which he considered excellent. I'm 24 and so far in my life experience, I think saving $1k/mo. after all is said & done, is acceptable. Unless I'm missing something that many of us here have missed as well. I hear about my coworkers (many of them have just bought houses) saying how they live on each paycheck.

Though, it is scary to think if one of our incomes go away, then we would absolutely be in trouble with a mortgage payment. We're both in IT and the job opps just aren't that plentiful at the moment either (should anything happen), but we feel confident that we're in solid positions to go through with this purchase.

Now this is interesting. 15% of 330K + 15K is about 65K. That's very close to the cash I had on hand when I bought my house this April. On hindsight, I am glad I did not go out on a limb because I've spent a lot more money after closing than I expected. I spent almost 10K on the house itself, even though it was labelled "immaculate" and "move-in condition". I replaced the heat pump, heat exchanger and thermostat, all windows, the sliding patio door, installed an attic fan and ceiling fan, painted the walls, etc. I also had to buy so many things: stuff like power tools and dishes and flatware and bedding and window treatments and media storages racks and on and on. The idea is that cash is something you will bleed like crazy after buying a home.

I spent 26K on the down payment and about 6K on closing costs: 32K. I had 65K before closing and 33K immediately after. As of right now, I have 22K left. I NEED that money because if I lose my job, I need several month's living expenses in reserve. I can't whittle that money down to nothing.

I can't tell you what to do but my brow gets raised when a 24 year old buys a 330K house. I know housing is expensive, but wow. Maybe you don't have a choice but a independent, prudent person would say that you probably should be looking at something else. Maybe you can pull it off but you're basically looking at an increased financial risk.

But I don't know what people are supposed to do in some areas. In San Diego, the median home price is like 350K. I can't afford that, yet I earn in the top quartile of all households. How DO people do it? I don't know but I have a feeling bubble gum and chicken wire holds the system up. Scary.

 

[Vic]

Originally posted by: wje

Oh yes... PMI insurance... we're prepared to pay $100/mo. for that. There's no way at this point that we can make the 20% down. Yeah, that 5% we're missing is an additional $16k. I heard that you can borrow for closing costs though (maybe try 20% down that way).

If the property values are increasing as quickly as you indicate, you should definately be able to get rid of the PMI within the first 12 to 18 months that you live there. As soon as your house appreciates at least 5%, you might want to start the process for getting the PMI cancelled.

Unfortunately, this is not correct. PMI on a conventional loan is for a minimum of 24 months. Only after the first 24 months will you be able to petition the lender to have it removed and then it is still at their discretion and will require a new appraisal of the property with an appraiser of the lender's choice.
Also, on a loan amount of $280,500 (85% of $330,000), PMI will be higher than $100/mo. I don't have my PMI factor tables in from of me, but I'm guessing it will be closer to $150 or so, if not more. My advice is to look into avoiding it altogether. PMI just plain sucks. In addition to often being expensive, it is also non-tax deductible. One great way to avoid it is by doing a piggyback 2nd loans, sometimes called 80/5's, 80/10's, 80/15's, and 80/20's. You'll have to pay a very slightly higher rate for your 1st mortgage at 80% (to account for the higher CLTV) and then probably around 8-9% for the small 2nd mortgage, but the combined payment of both loans is quite often less than that of higher LTV 1st with PMI and all of the interest is tax deductible and there is no PMI. Even if the payments were similar, I (personally) would take the 80/* method and take the bigger tax deduction.

Closing costs:
The standard 1% loan origination fee can be negotiated away if you agree to take a rate that is slightly higher than market, usually about 0.25% to 0.375% higher, depending on daily market conditions.
Other fees will be similar to what wje said (appraisals are $400 in Oregon and he forgot about your new lenders title policy, which could be as much as $2k, but that varies greatly by state), but find out how much your property taxes are going to be right now if you don't know already. You have a right to know and it is an important decision for your credit approval (debt ratio). Also, find out when the taxes are due (I have no idea for NY, but most states I do business in collect in the fall and some collect half in the fall and half in the spring) and expect to have to pay the remaining (per # of days) until that collection day upfront at closing plus more for your escrow. Basic equation for figuring out how much to contribue upfront for your property tax escrow is (# of months in collection cycle)-(# of months from 1st payment until next due date)+2=(# of months to collect).

Talk to your insurance agent and get approved for your new homeowners policy NOW! In case you haven't heard, insurance companies are bleeding money right now and homeowners premiums are going up. On top of that, many customers are having trouble finding reasonable policies, often delaying closings. If you know the house you are going to buy, talk to your agent now.

One last bit: have you considered financing to 90% or $297,000? Sure, your payments would be a little higher but your loan would still be within Fannie's cap (so you won't have to pay Jumbo rates or be approved for Jumbo) and you might have more a little more $$ left over after closing, a little breathing room, eh?

Good luck.

 

[rh71]

Originally posted by: mithrandir2001

Originally posted by: rh71

Originally posted by: mithrandir2001

Originally posted by: rh71
Ouch. I was playing with some numbers and I can barely afford it (with my fiance) at 15% down and $15k closing costs. So I was hoping you guys would say under $10k in closing costs so that we'd have enough $$ for furniture and whatnot. And this is already with a bit of parents' help.

Define "barely afford". That means different things to different people.

Take your estimated monthly payment (P&I + taxes + insurance) and divide it by your combined take-home pay. What is it? If it's pushing 40-50%, then you are buying too much house. My percentage is 23% and I enjoy the flexibility to own property and still afford to spend pretty freely. I qualified for a $200K loan, but I opted for one half that. I basically pay less than I would for an apartment. I can sleep well at night, and believe me, it's a wonderful feeling.

Barely afford = 15% down payment + $15k closing costs just comes into what we have on hand right now.

The calculation you asked me to do... comes out to ~45%. We know we won't have much more than $1k per month saved AFTER mortgage (principle/interest/PMI) + expenses (food, utilities, etc.). Again, the price of our home is as low as we can go around this area without living in a run-down 3 bedroom with structural issues. This house is in move-in condition and is barely pushing 3 bedrooms. My inspector gave it an 8.5 / 10 which he considered excellent. I'm 24 and so far in my life experience, I think saving $1k/mo. after all is said & done, is acceptable. Unless I'm missing something that many of us here have missed as well. I hear about my coworkers (many of them have just bought houses) saying how they live on each paycheck.

Though, it is scary to think if one of our incomes go away, then we would absolutely be in trouble with a mortgage payment. We're both in IT and the job opps just aren't that plentiful at the moment either (should anything happen), but we feel confident that we're in solid positions to go through with this purchase.

Now this is interesting. 15% of 330K + 15K is about 65K. That's very close to the cash I had on hand when I bought my house this April. On hindsight, I am glad I did not go out on a limb because I've spent a lot more money after closing than I expected. I spent almost 10K on the house itself, even though it was labelled "immaculate" and "move-in condition". I replaced the heat pump, heat exchanger and thermostat, all windows, the sliding patio door, installed an attic fan and ceiling fan, painted the walls, etc. I also had to buy so many things: stuff like power tools and dishes and flatware and bedding and window treatments and media storages racks and on and on. The idea is that cash is something you will bleed like crazy after buying a home.

I spent 26K on the down payment and about 6K on closing costs: 32K. I had 65K before closing and 33K immediately after. As of right now, I have 22K left. I NEED that money because if I lose my job, I need several month's living expenses in reserve. I can't whittle that money down to nothing.

I can't tell you what to do but my brow gets raised when a 24 year old buys a 330K house. I know housing is expensive, but wow. Maybe you don't have a choice but a independent, prudent person would say that you probably should be looking at something else. Maybe you can pull it off but you're basically looking at an increased financial risk.

But I don't know what people are supposed to do in some areas. In San Diego, the median home price is like 350K. I can't afford that, yet I earn in the top quartile of all households. How DO people do it? I don't know but I have a feeling bubble gum and chicken wire holds the system up. Scary.

Believe me, I have already taken everything (that I know of) into consideration (even before posting this thread). My parents are completely behind me regarding these financial decisions (I don't mean backing us up with cash). My mom's an accountant and has bought 2 homes and she thinks all this is very possible. My fiance's mom is even pushing us to throw in a larger down payment percentage. I'm practically playing the devil's advocate throwing in the "what about the furniture" comments. I think I'm set at some good figures with 15%. Couple that with whatever amount of weeks for "closing time" and we'll have more in the bank as well. You're right, we are certainly taking an increased financial risk (lack of savings), but nobody's to say we'll be paid the same salary rate for the next few years either. Don't get me wrong, I appreciate your thoughts.

 

[zod]

I'm going through the same thing right now.

The only difference is, $330k will buy me an apartment in Park Slope, Brooklyn. Nothing more. A condo or co-op. Real Estate is insane here, but I love the area.

I'm also only 24, and don't exactly have rich parents... I just can't believe how expensive real estate is and how much downpayments and closing costs are.

 

[rh71]

Originally posted by: zod
I'm going through the same thing right now.

The only difference is, $330k will buy me an apartment in Park Slope, Brooklyn. Nothing more. A condo or co-op. Real Estate is insane here, but I love the area.

I'm also only 24, and don't exactly have rich parents... I just can't believe how expensive real estate is and how much downpayments and closing costs are.

My fiance is from Brooklyn (still living there at this moment). All our friends who bought places in Brooklyn/Staten Island/Queens are paying $400k plus. But they get the added bonus of being able to rent out. And they're mostly 2-3 family houses so there's multiple incomes. If I were you, I'd move out to the island. It's only a 45 minute ride to Penn Station via LIRR. Or move out east to Suffolk county. You can easily have a bigger place than my parents here for $250k (inground pool and all).

 

[zod]

LI does have its advantages, but I love being in a neighborhood. Most other places in the country can't offer that. Top notch restaurants, close to a huge park, blocks away from the subway...

and most importantly, my total transportation costs every month is $63. A monthly metrocard. No car payments = beautiful.

Maybe when I get older I will get the call of suburbia, but when I'm young, I want to be near the city.