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FIRST TIME TIP
The most expensive closing cost a buyer pays is often the loan origination
fee. Lenders charge points to originate a loan. One point is equal to one
percent of the loan amount. A $240,000 loan with a 1-point fee will add
$2,400 to your closing cost. This charge can be eliminated if you take a
no-point loan. You'll pay a higher interest rate on a no-point loan, but
you'll conserve cash. If you don't plan to stay in the home for more than
a few years, it may be cheaper in the long run to take a no-point loan and
pay the higher interest rate.
Most lenders allow family or friends to give money to use for a home
purchase as long as they are willing to stipulate that the money doesn't
have to be repaid. However, lenders usually require that the borrowers
have 5% of their own money invested in the transaction. Also, there are
loan programs that will finance 100% of the purchase price with no money
down or low down payment loans that allow the buyer to reduce their
out-of-pocket expense.
Another way to generate cash to pay for closing costs is to ask the seller
for a cash credit at closing. Lenders have restrictions on how much a
seller can credit to a buyer (often no more than 3 to 6 percent of the
selling price). And some lenders will only allow credits for nonrecurring
closing costs, that is, closing costs like title insurance that are paid
on a one-time-only basis. Keep in mind that when you ask the sellers for a
credit, you are, in effect, asking them to lower the price of their
property. If the sellers give you a $5,000 credit, their proceeds will be
reduced by $5,000. |
