I'll be starting my build on a new home in about 4months. Im a 1st time buyer & will be doing a conventional loan. The price of the house is 239K & i'll be putting down about 30k. If i'm putting down that much is it possible that all my closing cost be waived? I asked that because a friend of mine said he didnt pay any closing cost on his house & he put down about 20K. If i do have to pay closing on this loan about how much will you think it will be? I know taxes are included, the tax rate where I live is about 1.2%. PMI according to radian ill be paying about 0.57 a month on the loan. Im not sure what my interest will be but im hoping to get around 4%
I just went through new construction last year around this time, I can tell you this, banks dont negotiate closing costs, thats normally done through the builder if they even agree to do so, putting money down gives you no negotiating power with a lender. The builder could agree to pay them all, or pay a portion, much like sellers do when they are selling their home to someone, usually around 3% they will agree to pay up to. Now, you do have the option to buy down "points" on the rate with a lender, but that usally involves putting more money down, as far as closing costs go, you neotiate that with the builder, seller, not the lender.
There are two different types of things you pay at closing. There are costs, which are the fees involved in getting the loan, inspection etc., and there are prepaids, which are your upfront escrow payments such as insurance, PMI and taxes. You will also have to pay your lawyer, they charge upwards of $1000 to handle your transaction. You can negotiate a set amount or a set percentage to be contributed by your builder, and sometimes lenders will offer a little bit if they are actively interested in you as a customer. I would not put to much into the lender contribution, they probably make it up somewhere else in what they charge you for getting you the loan.
Where you are buying and the price of your house influence the amount of these items. You will get a Good Faith Estimate from your lender that will give you an idea of how much you will need. In my situation, the seller would not contribute anything towards closing costs. They are running around $11,000 on a $159,000 house.
justrock has it right about two types of costs: pre-paid items and closing costs.
Pre-paid items are mostly escrow expenses: homeowners insurance, interest due from date of closing to the end of the month, real estate taxes, PMI if applicable.
Other costs are one time costs to purchase: title insurance (sometimes the seller pays owners title), bank fees, transfer taxes, doc stamps on the mortgage and other mortgage related items.
Note: if you do not get a loan to purchase your new home, most of the closing costs go away.
Also note: it depends on the market if the builder will contribute toward your closing costs or not. Natually you have to negotiate it in or you don't get it, but the market at the time of purchase will let you know the likelyhood of getting the contribution or not from the builder. You have to be very careful with this provision because I have seen builders offer the contribution but then if you read the contract the contribution only covers what would be the builders normal portion of closing costs in the purchase. Read the contract through and through before signing.
I'm a sales counselor in Florida with a national builder. We pay 3% closing costs when our lender is used to finance the mortgage and 2% if a cash deal.