Closing Costs - Wait & Save More, or Is There Another Option?

[oren117]

Hi all,

I am looking for some advice on how to gather funds for closing costs. To be exact, I am looking for a way to find 4.5K over the 3% allowed to be paid by seller.

Here's my scenario:

My husband and I have been saving for quite some time, and now have 11K to put down. We would be first time home owners, but his credit is terrible and he has a huge amount of debt. Since I bring in about 85% of the income, we decided it would be best to go conventional and put everything in my name.

We are looking to pay about $1500/month, and as we live in NOLA, that would correspond to 200-220K, all things counted. This is pretty much borderline in cost to get a home in a good area large enough for a family.

Today, I received pre-approval from my loan officer for a conventional loan at a 4.125% interest rate. She calculated 3% of closing costs to be covered by the seller, and for a home in the 220K range, the note came out to $1,614. I'm not sure if this is great, as my middle credit score is 767, and my debt to income ratio is decent. (Only student loans to account for.)

Regardless, my issue is that we'll seemingly need a total of 15.5K to get into a house! The loan officer says that with conventional, you can only have the sellar cover 3% and that the rest cannot be rolled into the loan. She is pushing me for FHA, but it just seems so expensive, and I'm honestly not even sure if we'd qualify, considering my husband's scenario.

Would anyone know if we have other options, aside from waiting (more) and saving? Are there any reputable banks to call?

I make too much to qualify for assistance through local or government assistance programs, and it could take until the end of the year to get this amount. My loan officer suggested asking family. Too bad we have noone who will randomly gift us a few thou!

Our immediacy in need draws from 1) the rise in interest rates, and 2) having an infant, which comes with an infant's sleeping schedule, living in a 600sq ft shotgun apartment. We desperately need seperate rooms, with doors(!). However, we do not want to move into another apartment yet, as it would just take from our overall savings.

I suppose everyone has their own unique problem, and I know it makes the most sense to wait and save. Still, though, I cannot help but think there may be hope.

Any ideas?

[StartingOver10]

I don't understand how you are looking for $4500 over and above the 3% seller contribution on a $220k purchase. I understand the $11k down payment (5%) - that is perfectly normal. I also understand the seller contribution is limited to 3% of purchase price because that is standard.

However, another $4500 is a little over 2% more of the gross purchase price and that is a high amount for your closing costs and pre-paid expenses. Generally on a loan the size you are looking at has closing costs in the neighborhood of 3.5% to 4% (total costs) of the loan amount even in my area which has outrageous insurance costs. 

Are you looking for more money because your lender suggested it would run that much? If so, find another lender.

If you are looking for more because you want to have reserves, then that is a different question.

Sources for additional funds can be any or all of the following:

1) Savings

2) Seller Contribution

3) 401k or other retirement plans (great for reserves because you don't have to actually touch the funds, just show they exist)

4) Gift funds from family members

5) Sell items around the house (keep the receipts to show the transactions)

6) The lender can contribute toward your closing costs. They do this by increasing the rate a little bit to get you funds for closing costs.

In your specific case, shop for new lenders to get your costs in line. I think the existing lender you went to might either be a little high or maybe quoted you a "worst case" type scenario. Those that do that type of quoting are unsure of their own costs. Shop your lender.

[oren117]

Yes, she said that closing costs were that expensive. I did not realize this could be a lender specific problem though. Thank you. I'll call around.

[StartingOver10]

Yes, closing costs and pre-paid expenses are from the following:

1) lender fees

2) government fees

3) third party fees (survey, title costs for example)

Did she give you a detailed breakdown of each charge? You should have something called a Closing Costs Worksheet with the same info the GFE provides. It's a little easier to read. Some lenders call it something else, but it is a line by line breakdown of each of the costs.

[oren117]

She did give me the worksheet. Since this game is new to me, though, I wasn't sure where the rate from each line item drew from.

I've touched base with another loan officer, who is working with me on what I call "reverse points" to get us into a loan. The idea of it seems counter-productive, I suppose, but it's looking better than FHA in the long run!

Crossing my fingers that the loan, seller, and our savings will come together to have everything paid. Here's hoping.

I had no idea you could no longer roll closing costs into the loan!

[StartingOver10]

You can roll closing costs into the loan.  How you have to do it is with the seller contribution in the contract that you negotiate for the purchase. If you don't have it in your contract, then no, you can't finance them in unless the lender is willing to pay some of your costs.  So, FHA allows a maximum of 6% of the purchase price to be paid toward your closing costs and pre-paid expenses by the seller. Conventional allows a maximum of 3% of the purchase price to be paid by the seller. Naturally the seller may or may not agree to pay all or some of the alloted costs.

The lender costs and interest rate are inversely related - if you want the lender to pay some of your closing costs, they will have to increase the rate to get funds to contribute to your closing. You have to ask you lender specifics to find out what they charge.

Some of the lender fees are fixed fee's, some of them are based on the mortgage amount. The only costs the lender has control of is the lender fees - not the third party fees or government fees.

[oren117]

I had not realized that seller contribution was the same as "rolling it into the loan," at least in this case.

With my (private) student loans, for example, all extra fees and costs were rolled into the total loan. So, of course, I did not have to pay anything up front.
As these costs are not nearly as much as a mortgage loan, they were still quite a bit, so I thought I may be able to do the same thing with a mortgage.

Now I see this is not possible. A bit sad, but we'll make it work.

[StartingOver10]

Is it possible for you to go back to the seller and renegotiate the sales price to include some closing costs for you? Check with your Realtor.

Add the 3% to the purchase price so the seller will net the same amount. You might have to change the closing date if there isn't enough time left to process the loan. Also, you might go to another lender to get other estimates.