Everyone appreciates the advantages of owning a home: you enjoy tax benefits, you can decorate and customize however you like, and you become part of the community once you’re settled. However, when it comes to the home buying process, there’s one thing nobody likes: surprises. Partnering with someone you trust and who knows the local market will absolutely reduce the chances of unexpected events, but if you are further along in the process and your closing costs are more than you expected, here are three possible reasons why.
Points
Has your lender included points on your new estimate? Points, as they are known in the mortgage industry, are pre-paid interest. These allow you to obtain a lower interest rate over the life of your loan by pre-paying some of your interest cost up-front. Paying these up-front costs is completely up to you, the buyer, and depending on the circ*mstances, points may be tax-deductible.What your lender should be analyzing for you is your break-even point by paying points. Since points afford you a lower interest rate, you will save more on your monthly payments—but the question is how long into your loan term those savings will outweigh the cost of investing in points. If you know to a great degree of certainty that you will keep the same house and the same mortgage for an extended period of time, points may make sense for you. However, if an unforeseen circ*mstance such as a job transfer necessitates vacating your mortgage, or if rates drop and refinancing your mortgage makes sense for you financially, you may not reach your break-even point and as a result, you may lose the money you invested on points. Consult your Mortgage Originator for details on points.
Real Estate Taxes
Are the real estate taxes on your chosen property higher than what you and your lender originally estimated? Real estate taxes are part of your escrow account, which is a subcategory of your closing costs. All properties come with a unique annual real estate tax bill. If the real estate tax bill that comes with your property is higher than what you and your lender originally estimated, then your closing costs will be higher as a result.One possible reason that a house would have a higher tax bill is if it is assessed at a higher amount than your contract price. A higher assessed value will always come with a higher annual tax bill because the county is valuing your property at a greater amount than what you and your seller have agreed upon.
Transfer Taxes
Is the home that you have chosen a bank-owned property? It is customary in Maryland to split your transfer taxes 50/50 with the seller. Transfer taxes are the fees that are charged by the county in which you are buying to transfer the title from the current owner to you, the new owner. When you buy a house that is currently owned by a bank, the bank doesn’t normally pay the seller’s 50 percent of the transfer tax. If this is the case, you would need to pay 100% of the transfer tax, and this would cause your closing costs to be higher than expected.
Your lender should provide you with a loan estimate, but keep in mind it’s exactly that – an estimate of what to expect. The government allows some of these fees to be higher than estimated on the day of settlement. You want to choose a lender who is experienced, knows the local market, and someone that makes you feel confident that the estimated fees are accurate to the best of their knowledge.
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Topics: Closing Costs, Buying a Home
FAQs
You decided to get a different kind of loan or change the amount of your down payment. The appraisal on the home you want to buy came in higher or lower than expected. You took out a new loan or missed a payment and that has changed your credit. Your lender could not document your overtime, bonus, or other income.
How accurate are estimated closing costs? ›
You want accurate figures. At Homebuyer and plenty of other lenders, these costs get estimated as close to 100 percent accurate as possible. Remember that numbers are never exact upfront. Don't worry about any estimated fees that your lender doesn't dictate.
How do you predict closing costs? ›
You can generally expect the total to be between 1 and 5% of the price you are paying to buy your home. Payment for closing costs can sometimes be financed with your loan, in which case it will be subject to interest charges. Alternatively, you can pay your closing costs in cash, similar to your down payment.
Can I negotiate closing costs with a lender? ›
Although you can haggle some closing costs and fees, many of the fees charged by the government cannot be negotiated. These may include an upfront FHA mortgage loan fee, VA funding fee and USDA mortgage insurance fees.
What are the biggest closing costs usually paid by sellers? ›
There's no cap on how much a seller can pay in closing costs. The seller's largest expense is typically the real estate agent commission, which is usually 5% to 6% of the total sale price of the home.
What fees cannot increase at settlement? ›
Zero-percent tolerance items: Certain aspects of your transaction will be categorized under the zero-percent tolerance level, meaning the costs cannot go up at closing. For instance, this applies to any fees from your lender, such as the origination charge. Rate lock fees and transfer taxes also have a zero tolerance.
Are closing costs overestimated? ›
It is common practice in many markets to have the seller pick the title company, as they may be paying some closing costs for you, the buyer. Unless the closing agent is known upfront and the loan officers can get the title's costs, a lender is going to overestimate these costs without accurate information.
Why did my mortgage go up $400? ›
You could see a rise in your mortgage payment for a few reasons. These include an increase in your property tax, homeowners insurance premium, or both. Your mortgage payment will also go up if you have an adjustable-rate mortgage and your initial rate has come to an end.
What happens if the closing disclosure is incorrect? ›
Unfortunately, errors may occur on the Closing Disclosure form — that's why you need to review it. If you do find an error, your lender should provide a new Closing Disclosure form that would restart the three-day period. This could delay your closing date.
How much house can I afford with $10,000 down? ›
If you have a conventional loan, $800 in monthly debt obligations and a $10,000 down payment, you can afford a home that's around $250,000 in today's interest rate environment.
Prior to closing, the lender provides the buyer with a closing disclosure document listing their final loan costs, real estate fees, and cash required to close. This helps the buyer know exactly how much cash they need to bring to closing to complete the real estate transaction.
Do closing costs fluctuate? ›
Certain closing costs are not controlled by the lender, nor do they go to the lender. They can increase by any amount at any time.
What is negotiable in closing costs? ›
There are a number of closing costs you may be able to negotiate down with your lender, including application fees, fees associated with rate locks or the purchase of points, and the real estate commissions paid to your agent and the seller's agent.
Is it better to ask for closing costs or lower price buyer? ›
“If all things are equal on the offers, it's generally in the best interest of the seller to accept an offer with a lower price than it is to accept an offer with a higher price and a closing costs credit,” says top-selling Antioch, California listing agent Rick Fuller.
What type of fee is typically paid to the lender at closing? ›
Mortgage closing costs are the fees associated with buying a home that you must pay on closing day. Closing costs typically range from 2 to 5 percent of the total loan amount, and they include fees for the appraisal, title insurance and origination and underwriting of the loan.
Why is cash to close higher than closing costs? ›
Your cash-to-close amount is usually higher than your total closing costs because it includes your down payment.
Is it better to have lower rate or lower closing costs? ›
A lower fixed interest rate leads to lower monthly mortgage payments. However, it may lead to higher closing costs due to discount points charged by lenders. Conversely, a higher interest rate could mean lower closing costs but result in higher monthly payments over time.
Can the loan amount change on the closing disclosure? ›
Mortgage lenders are required to furnish the closing disclosure at least three business days before the closing. You can correct errors on the closing disclosure before the closing, but the loan amount and interest rate can't change unless there's a change in circ*mstances.
Is asking price the same as closing price? ›
The seller and their real estate agent come up with the asking price as a starting point for potential buyers. It's important to understand that the asking price isn't necessarily the amount the seller will receive for the property. Instead, the buyer and seller will negotiate to come up with the final selling price.
