That’s not true. There are closing costs for all types of loans. What are loan closing costs? Loan Closing Costs are all of the fees that are involved in order for you to close your loan. So these entail not only loans but other costs as well. Your loan costs are points, processing fees, admin fees, underwriting fees, all of these things that are on the loan side.
When you do your loan, there are other fees that are involved besides just your down payment. There could be origination fees in some cases or discount points, discount points are winning. Pay to get a lower interest rate. It’s not a discount or a coupon, I promise it’s actually a cost. So, say if you tell your lender, hey, I want a 2.25% interest rate.
“About closing costs. What are they? How much are they? Where do they come from?”
The lender says, yes, we can do that, but it’s going to cost you a point. That point equates to 1% of your loan amount. So, if that’s $500,000. It’s going to cost you $5,000 to get 2.25%. That’s just an example for points. You don’t have to have points. They’re not a requirement. And you definitely want to take a look at your loan estimate to make sure do I have points? Do I have origination fees? What is the actual cost of this loan too often? People don’t look at the loan estimate and they just see the 2.25% or whatever the interest rate is without asking them what the cost is of beginning this 2.25%. So make sure to take a look at that, or you can call us that’s even better.
Other costs are your taxes, insurance interest, and prepaid. Prepaids are all of the taxes and insurance that are needed to either pay them upfront. Or if you have an impound account, then they collect a certain amount as a cushion, and then you make payments each month. For your taxes and insurance, they pay your insurance once a year.
“People don’t look at the loan estimate and they just see the 2.25% or whatever the interest rate is without asking them what the cost is of beginning this 2.25%.”
And if you’re in California, they pay your taxes twice a year for you each month you make those payments. And that way you don’t have to worry about paying it all at once. If you don’t have an impound account, you’re going to pay that upfront taxes, interest prepaid those are your other costs. So when people tell you that there’s no closing.
Just keep in mind that there are always loan closing costs. It just depends on who’s paying for it. So sometimes a lender can raise the interest rate and then include the loan closing costs in their fees. So, when they say that there are no loan closing costs, there are always closing costs in every loan. It just depends on who pays for it.
The seller can pay for your loan closing costs. The real estate agent can pay for your loan closing costs. Don’t tell them other parties can pay for your closing costs as a gift. So it just depends on how you want to take care of them. When the lender is paying your loan closing costs, it’s paid with what’s called a rebate, and that rebate goes directly to your closing costs as a percentage.
“So it just depends on how you want to take care of them.”
So for instance, let’s say that you qualify for 2.25% with no cost or discount points, but you want your loan closing costs paid. The lender says, okay, we’ll pay your $7,000 in loan closing costs, but we’re going to raise your rate to 2.75%. Then you get a rebate for that 2.75%. That’s how rebates work. And that’s when you see no closing costs advertised, that’s how they’re doing it for your closing costs.
The average is about 2% of your purchase price. So if you’re purchasing a home for $500,000, you can bet that you’re probably going to have somewhere around $10,000 for closing costs. Of course, that depends on different escrow companies are more expensive or less expensive. The title is more expensive, less expensive. Some people are buying their interest rate down like we talked about. So it depends. Right. But that’s an average.
“Some people are buying their interest rate down like we talked about. So it depends.”
Okay. I hope this clears up closing costs a little bit. If you do have further questions, please reach out to us at veteransnationalmortgage.com.
You can click apply now if you’re ready and we can give you a free interest rate, quote, and help to get you pre-qualified without hurting your credit, or you can give us a call directly at (888) 922-2022.
Our team is excited to help you with your dream home.
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