Homeownership Made Simple — Episode 9

Closing Costs Explained: What Buyers Need Beyond the Down Payment

A buyer can have enough money saved for the down payment and still be surprised by the amount needed at closing.

That’s because the down payment is only one part of the cash required to purchase a home.

Closing costs cover the expenses associated with getting the mortgage, transferring ownership and setting up items such as taxes and insurance. The Consumer Financial Protection Bureau says closing costs typically run about 2% to 5% of the purchase price, not including the down payment. Actual costs vary based on the loan, lender, property and location.

What Can Be Included in Closing Costs?

Closing costs can include a number of different expenses, such as:

• lender origination charges
• appraisal fees
• title-related expenses
• government recording and transfer fees
• prepaid homeowners insurance
• prepaid interest
• initial escrow deposits for property taxes and insurance
• mortgage-related fees that vary by loan program

The exact mix will depend on the transaction.

Closing Costs and Cash to Close Are Not the Same Thing

This is one of the most important distinctions for buyers.

Closing costs are the expenses associated with the loan and transaction.

Cash to close is the total amount you will actually need to bring to closing.

Cash to close can include:

Down payment + closing costs − earnest money already paid − seller credits − lender credits + other adjustments

Your Loan Estimate shows an estimated cash-to-close amount so you can begin planning before the closing date.

Your Loan Estimate Gives You an Early Look

After you apply for a mortgage, the lender generally must provide a Loan Estimate within three business days.

This document shows your estimated interest rate, monthly payment, loan costs, closing costs and estimated cash needed at closing.

Buyers should review this carefully instead of focusing only on the interest rate.

Some Closing Costs Can Be Compared

Not every fee is fixed.

The Loan Estimate identifies certain services that buyers may be able to shop for. Comparing lenders can also reveal differences in origination charges and lender credits.

A lower advertised interest rate does not automatically mean the loan has the lowest overall cost, so comparing the entire Loan Estimate matters.

Can the Seller Help With Closing Costs?

Sometimes.

Depending on the contract, market conditions and loan program, a seller may agree to provide a credit toward some of the buyer's closing expenses.

A lender may also offer a lender credit. However, lender credits commonly involve a tradeoff, such as a higher interest rate.

That is why buyers should look at the entire financing structure rather than simply trying to minimize the cash due on closing day.

What Is the Closing Disclosure?

Before closing, you will receive a Closing Disclosure showing the final terms and costs of your mortgage.

For most covered mortgages, the lender must provide it at least three business days before closing.

Compare it with your most recent Loan Estimate. If the numbers have changed significantly or something looks unfamiliar, ask for an explanation before closing.

One More Closing-Day Warning: Wire Fraud

Buyers may be instructed to wire a large amount of money for closing, which creates an opportunity for scammers.

The FTC warns that criminals sometimes impersonate lenders or real estate professionals and send fake last-minute wiring instructions.

If wiring instructions change unexpectedly, do not send the money based solely on an email. Call a trusted contact using a phone number you already know is legitimate and verify the instructions first.

Plan for the Whole Purchase, Not Just the Down Payment

A buyer who only plans for the down payment may underestimate how much cash will actually be needed.

Before you start seriously shopping for homes, ask your lender for an estimate of:

• your expected down payment
• estimated closing costs
• estimated cash to close
• monthly payment
• reserves you should keep after closing

The goal is not just to get to closing.

It is to get there without using every dollar you have.

Ready to Understand Your Buying Numbers?

Tu Familia Real Estate can help you compare Northeast Florida homes while your lender helps you understand the financing and cash requirements behind the purchase.

Explore Your Financing Options

https://tufamilia.realestate/financing-hub