How to Include Closing Costs in Your Home Purchase

If you’re buying a home, you typically can’t add closing costs directly to your mortgage. However, there is a strategy that allows you to cover these costs: seller concessions.

Here’s how it works:

1. Negotiating with the Seller: Instead of asking for a price reduction, request seller-paid closing costs.
2. Adjusting Your Offer: If a home is listed for $250,000 and you were planning to offer $240,000, you could instead offer $250,000 while requesting the seller pay $10,000 toward your closing costs and prepaid expenses.
3. Final Impact: The seller still nets $240,000, while you get $10,000 covered, reducing your out-of-pocket expenses at closing.

What About Refinancing?

When refinancing a mortgage, rolling in closing costs is typically an option, but it depends on your loan-to-value (LTV) ratio.

• If you have enough equity, the lender may allow you to add the closing costs to the new loan balance.
• If your equity is limited, you may need to pay some or all of the costs upfront.

Each situation is unique, so discussing your options with a mortgage professional is key.

Bottom Line

While closing costs usually can’t be directly added to a mortgage in a home purchase, strategic negotiation with the seller can help you cover these expenses. In a refinance, rolling in closing costs depends on your home’s equity. If you have questions about how to structure your loan to minimize upfront costs, get in touch with Collette Horton to explore what works best for you.

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What Costs Should You Expect Before Closing?

Many first-time buyers assume the only expense to prepare for is the down payment, due at closing. However, there are several costs to budget for before that day arrives:

1. Earnest Money Deposit
   Earnest money is a deposit that shows you’re serious about purchasing the home. While negotiable, this is typically 1%–2% of the home’s sales price and is paid when you write the contract.
2. Option Fee
   The option fee gives you the right to walk away from the contract within a negotiated timeframe for any reason. Like earnest money, this fee is also paid at the time of the contract.
3. Home Inspection
   After your offer is accepted, you’ll need to schedule a home inspection. This ensures the property is in good condition and helps identify potential repairs. Home inspections generally cost $400–$1,000, depending on the size of the home and the type of inspections required.
4. Appraisal Fee
   Once inspections and repair negotiations are complete, your loan officer will order an appraisal to determine the home’s value. You’ll pay this fee directly to the appraisal company, typically weeks before closing.

What Costs Are Due at Closing?

When closing day arrives, you’ll need to bring funds to cover these major expenses:

1. Down Payment
   Your down payment is due at the closing table. You’ll either wire the funds or bring a cashier’s check to cover this cost.
2. Closing Costs and Prepaid Items
   In addition to the down payment, closing costs include lender fees, title services, and prepaid items like property taxes and homeowners insurance. Your chosen insurance company will send an invoice, which is paid at closing as part of your total costs.

Budgeting Pro Tips

• Be Prepared Early: Having a budget for upfront costs like earnest money, option fees, and inspections will prevent surprises during the process.
• Ask Questions: Work closely with your loan officer and real estate agent to understand all potential costs.
• Keep Extra Funds Ready: It’s always a good idea to have a financial cushion for unexpected expenses.

Understanding the costs at each step will make the process smoother and less stressful. With a solid plan, you’ll be one step closer to achieving your dream of homeownership!

Liberty Star Mortgage – Guiding You Home

Buying a home doesn’t have to feel overwhelming. With the right guidance and preparation, you’ll feel confident every step of the way.

The post Common Budget Questions for Buying a Home appeared first on Liberty Star Mortgage.

HOA Payments and Escrow: What’s the Truth?

Unlike property taxes and insurance, HOA payments are not included in your escrow account. Your escrow account is designed to collect and manage funds for annual expenses like property taxes and homeowners insurance. The lender then pays these on your behalf when they come due.

HOA dues, however, are handled differently. Typically, you’ll receive an invoice from your HOA in December that covers the entire following year. This invoice is due by January 31st, and you’ll need to pay it in full to avoid any penalties.

 Budgeting for Your HOA Payments

Because HOA fees aren’t included in your escrow account, it’s essential to budget for these payments separately. This can come as a surprise for first-time homeowners who are accustomed to their escrow covering all their major annual expenses.

To ensure you’re financially prepared, it’s wise to set aside funds each month for your upcoming HOA payment. This way, when that invoice arrives in December, you’ll have the necessary amount ready to pay.

Why Is This Important?

Failing to budget for your HOA payment can lead to financial stress when the invoice arrives. Missing the payment deadline can also result in late fees or penalties imposed by your HOA, adding unnecessary costs to your budget.

Have Questions About Escrow and Budgeting?

Understanding how escrow works and what’s included can be confusing. If you have questions about your escrow account, HOA dues, or how to effectively budget for your home expenses, contact Collette Horton at Liberty Star Mortgage.

The post Is Your HOA Payment Included in Escrow? appeared first on Liberty Star Mortgage.