I am often asked about options for down payments, closing costs, and how much you actually need to bring to the table. Since “down payment” to the lender may be different from “total money I have to bring to closing” that you as a buyer are thinking, I just want to give you a couple thoughts of what makes up all those costs you see at the table.
Down payment – the percentage required (or voluntary) by your loan for your portion of the investment in the home.
Title fees – this is a big one, and quite frankly, a substantial one. If you are buying from another party, not only is the lender going to require that your transaction be an insured closing at a title company, but there may be some very specific requirements placed by the state at additional costs.
Lender fees – it costs something to process your application and documents. There are a number of behind the scenes checks going on to make sure that everything received was verified. All of these things cost money. While you may negotiate some of these, it tends to be pretty standard at one lender to have certain fees, perhaps varying by the loan option chosen, or the state.
Other people fees – appraisals cost money and while some lenders collect that up front, it is still shown on your settlement statement as a cost of doing business.
Government fees – recording, document stamps, the lingo differs by state, but it’s pretty standard.
Escrow reserves – deposit towards property taxes, homeowner’s insurance, etc. for the coming year.
Payoffs to various parties – first year of homeowner’s insurance, property inspections, sometimes home repairs required during the process, appraisals, etc.
As you can see, closing costs is very different from cash to close. You have the power to negotiate some of them, shop for homeowner’s insurance, and negotiate the seller’s portion of closing costs. All of these things can help you reduce your cash to close!