Everything You Should Know About Personal Loans for Closing Costs
When most people want to buy their first home, they are aware of the fact that they have to come up with a down payment. This payment will include the costs of the actual home – and what will allow you to call that house “yours” for the rest of your life.
However, most people tend to forget about a very significant aspect – and that is the closing costs. Since these costs can get rather high, you must know how to account for them.
So, what exactly are closing costs? When do you have to pay for them? Are they going to cause a huge hole in your budget? Read on to find out.
What Are Closing Costs?
Closing costs represent a relatively wide variety of fees you have to pay once you have settled with the down payment. But why are they called “closing costs”? Well, it’s because you have to pay them only when you close in on your home payment.
The bad news is that the closing fees can account from 2% to 5% of your home’s cost. The good news, however, is that there are a few ways for you to reduce those costs – or avoid them altogether. It is all a matter of how you calculate them.
Generally speaking, buying your own place comes with its fair share of complications. After you are done with the negotiation stage, you’ll be settling on the date when you have to close the deal. On that day, the previous owner will declare to be the rightful owner of the estate.
During that title turnover, you will be required to pay several fees, which might include:
- Title service fees
- Attorney fees
- Document stamps
- Survey fees
- Document taxes
- Mortgage application points
- Brokerage commission fees
- Inspection fees
- Appraisal fees
- Warranty fees
And the list does not stop here. As you can see, the down payment is not the only cost involved. Closing fees can add up a fair amount – and depending on the price of the house that you are planning to buy, the number can get rather high. This is why sometimes, you may have to go for closing cost loans to cover them all.
Still, these fees will not always have to be paid. The home buying process is a significant factor, and it will also depend on the type of mortgage that you get. Some mortgages will also cover the closing costs – but when they don’t, you might want to do some research on personal loans for closing costs.
What Are the Different Kinds of Closing Costs?
Closing costs are also divided into several different categories, which you might want to familiarize yourself with. Some of these costs are actually tax-related and may vary depending on the neighborhood that you live in, as well as other different factors. Depending on how many you may have to cover, you might be required to opt for loans for closing costs.
Simply put, here is where your closing fees may be going to:
Mortgage Application Fee
This closing fee actually varies from lender to lender. It can cost as much as $200 – or it can go as high as $400. It won’t have to be paid when you are simply looking at mortgages and searching for the best one – but you will have to pay it once the lender has processed your application.
It may be called a closing fee, but sometimes, this may have to be paid before the actual deal closes. Sometimes, you will be asked to pay this fee a fair time before the closing is actually due – so don’t be surprised if this request comes forth.
Depending on the case, the seller may or may not pay this fee. However, there are cases when this fee might actually be the responsibility of the new owner. Simply put, this fee will go towards hiring an appraiser. With that fee, the lender will make sure the bank will not be lending you more money than the property is actually worth.
Not every estate, apartment, or house is in good condition when you buy it. For this reason, some lenders might require that you make an inspection of the house, to ensure that it is in good condition.
This fee will depend on the size and condition of the house – but it can go anywhere from $150 to $400. It will also depend on the lender since some will come with their own inspectors – whereas others will leave it to you to find the professionals.
This fee is generally skipped with most closing costs – but sometimes, the lender might require it as well. It is especially required when it comes to a commercial lender.
To put it simply, this fee goes into hiring professionals that will verify the lot and the structures built upon it, ensuring that all its boundaries are noted properly. The survey fee can cost anywhere from $300 to $450.
Needless to say, legal fees may add quite a lot to your mortgage bill. However, it is always a good idea to have a professional scan over your paperwork. This will ensure that everything is in order and that the process will go smoothly.
Some lenders will opt for bringing their own lawyer – but bear in mind that those attorneys will have the interests of the lender in mind. You might want to bring your own in as well since they have your interests in mind.
Legal fees can run anywhere from $300 to $600, depending on who you hire. While they may be rather costly and can require a personal loan for closing costs, they represent a better alternative compared to having other costly “surprises.”
Title Search and Insurance
Most of the time, this is not needed. However, you don’t know who else might come with claims to your home. This fee will ensure that your potential home is free of any other titles and that no one will bring you to court, trying to take it away from you.
This fee will differ, depending on the insurance company that you hire and the value of the house. Generally speaking, this fee will be around 1% of the house price and will have you paying around $200 at most.
Private Mortgage Insurance (PMI)
Those who provide less than 20% of their down payment may also have to pay for the PMI. This PMI is actually 2.5% of their mortgage – although this might vary depending on the actual value of the home.
Every lender will require that the owner will have some sort of insurance on their home – at least for when the house is under the mortgage.
It may double as a “closing cost,” as you are generally required to pay it at closing. Still, there are times when you will have to pay the insurance fee in advance – and sometimes, to the insurance company directly.
Let’s say that you close in on your home on the 1st of the month, but your mortgage payment is due on the 15th of the month. In that case, you will be required to pay a fee called “prepaid interest” covering the remaining days until your last payment.
Sometimes, the seller will reimburse these payments – provided everything goes smoothly. After all, it is in their interest that you close as soon as possible. The cost will depend on the amount of your mortgage, your interest rate and other important clauses regarding the payment.
Points are not always required, but you may still come across them. One point is around 1% of your mortgage, and you will have to pay anything from 0 to 4 points.
Held by third parties, escrow fees are part of the escrow system – which most homeowners use to pay insurance, PMI, and real estate taxes. Generally speaking, when you close in on a home, you may have to put aside three month’s worth of escrow fees in your account.
Realty Transfer Tax
Think about when you are buying a new vehicle: you will have to pay for it to be transferred to you. Similarly, you will have to pay when a property is transferred – and likewise, the fees will vary from state to state.
The local government will need to have a record of your home purchase. It is not as expensive as other fees, but it might still cost you around $50.
Some yearly expenses will have to be split between you and the previous owner. For instance, if you purchase the house mid-year, you will be required to pay for about 50% of those fees.
How Much Are Closing Costs?
One cannot tell precisely how much you will have to pay for closing costs. It will mostly depend on your home and the mortgage that you applied for.
Generally speaking, closing costs can be 2%-5% of the value of your home. Therefore, if you bought your home for $150,000, the closing costs may be anything between $3,000 and $7,500. But this is just an example.
Who Pays Which Closing Costs
As the buyer of the home, you won’t always have to pay the closing costs. Sometimes, they can be paid by the seller – whereas other times, they can be paid by the lender.
Costs the Seller Can Pay
If the seller wants to get rid of the house quickly, you may ask them to pay some of the closing costs for you – if not all of them. This is usually doable when the house already has pretty good equity. It does not hurt to ask them – and simply put, the worst thing that could happen is that the seller will say no.
Costs Your Mortgage Lender Can Pay
Lenders can also pay some (or all) of the closing costs, whichever they may be. They may not roll your costs into the mortgage – but depending on the sum, they may raise the interest rate to cover them. After all, no lender is in the habit of giving free money away.
When Does It Make Sense to Get a Personal Loan for Closing Costs?
As you may have realized, closing costs can be rather expensive – so if you have many of them to deal with, it would make sense that you get a personal loan for closing costs. This way, instead of paying off all the lump sum in one go, you can pay it over time, using a loan.
How to Get a Personal Loan for Closing Costs with Stilt
If you are planning to get loans for closing costs, you should know that it is very easy to do so with Stilt. These are the steps that you will have to go through:
Prepare the forms and documentation necessary to take out a loan. Depending on whether you are a citizen of the US or not, you might have to come up with different documentation.
Once Stilt has determined that you have met their eligibility criteria, you will be informed of the approval of the loan. This can take from a few hours up to a few days – depending on how complex your financial situation is.
Once you have taken out the money, all you have to do is make your repayments when they are due. This will include both the principal and the interest rate – regardless of the order, you choose to pay them in.
Closing costs can certainly be inconvenient, particularly if you are going for a relatively expensive estate. However, with the help of closing cost loans, you should be able to make that burden easier to bear – and pay it all in small increments.