hey kyle here with win the house you love dot com in this video i'm gonna help you understand why closing costs can be so expensive who's charging all this money what are they charging the money for and then what can you do to actually lower some of these closing costs so you're in a better position to feel like you actually understand what's happening with closing costs instead of feeling like you see this number and you're unsure of it and you're not sure what's right you're trying to figure out okay should i actually be paying this or what is normal in buying a home so first when we talk about closing costs this work can be used interchangeably with different things and so i just want to clear up what this means so there's actually several things that kind of go into closing costs and the best way to understand this is it's actually going to be your down payment plus closing costs minus adjustments equals cash to close don't worry i'll explain all these uh separate pieces so closing costs are going to be the charges that are additional to being able to buy a home it's for all the people involved in the purchase of your home uh to help you be able to close on it so what we're actually talking about here is the cash to close is that bottom line number so when when you're asking yourself the question of how much do i actually have to bring to the closing table what what check do i have to bring to somebody to be able to purchase a home and that's your cash to close so first we have the down payments so the down payment is basically how much money are you putting up compared to how much money the bank is putting up so this is normally a percentage of the purchase price so for instance on a commercial loan there's a minimum of three percent down that means you're putting three percent as a down payment and the bank is giving a loan for 97 so those equal up to 100 of the purchase price so the minimum down on conventional is three percent for fha 3.5 for usda it's zero percent and for va it's zero percent and on this channel i have loan requirements for every single one of these loans that you can search for if you're interested so you have the down payment so maybe we're running with a conventional loan and we're three percent down okay so on a hundred thousand dollar uh home that's three thousand dollars two hundred thousand dollar home that's six thousand dollars then our closing costs and we'll go into this in more detail closing costs are going to be the other fees that are charged here so um they're not just miscellaneous fees for like or like made up fees like junk fees all these fees actually have a purpose and i'll show you that here on the next slide then you have your adjustments so things like earnest money deposit if you put money down on a contract that would be subtracted because you already paid for it up front so earnest money is just basically kind of like a good faith faith offer to the seller saying hey we really want to buy this home and we're willing to put let's say uh two thousand dollars at stake so if we back out of the deal that two thousand dollars is uh in jeopardy they're in different states handled that different uh differently then you also have seller credits which we'll talk about that's when the seller actually gives you a portion of money to go towards your closing costs you have lender credits where the lender kind of can do the same they can give you a credit to lower your closing costs and then tax parition um every county handles this differently but basically this is how much tax is being given to you as a credit at closing and so this all equals our cash to close when we talk about cash to close this is just what is the final check due at the closing table when you sign when you get the keys most of the time what check is being due here okay so what's frustrating about closing costs is i think sometimes they can seem like oh it's the lender is going to charge me a bunch of random fees and that's what closing costs are and that's not the case at all when you buy a home there are a lot of people involved right we can see right here so this is you in the center you purchasing a home and these red arrows are showing the money that's actually going to all of these individual uh either companies or people here that are getting paid by you purchasing a home it's not just you and the seller and your agent there are a lot of people involved in this so for instance you have your insurance agent all right they're going to give you a homeowner's insurance policy they're getting paid through that as well that's part of closing costs your lender is helping you secure a loan that's part of closing costs you have a title company who's doing a title search and insurance on your home to make sure there's no problems with the deed your actual ownership of the home that's part of closing costs you probably have a home inspector who is looking at your home and making sure it's up to the quality standards that you're looking for that's part of closing costs you have an appraiser who's judging the value of your home that is part of closing costs the county is going to charge to record the deed and the mortgage that's part of closing costs you may have an attorney who's going to review uh your contract and make sure everything is legal and in your best interest that's part of closing costs you might have a home warranty uh that is part of closing costs um and then you have the a little bit different over here you do have a buyer's agent and a seller's agent and they're getting paid but they're getting paid by the seller so the seller will pay for a couple different things here um so we have our seller the seller normally will pay both the seller's agent and the buyers agent that usually comes out of their funds so the seller does have their own closing costs as well and then often the seller in contracts can be negotiated to pay the home warranty and possibly some other things like title fees as well depending on what's common and all contracts can be negotiated as well but what you can see here is closing costs are here because there are a lot of people helping you buy a home sometimes we forget that there's actually a lot of people involved in just one person buying a home it's not just you and the seller in your agent there's a lot of people and all of these people and companies end up getting paid through closing costs and that's why they exist here and they're all needed to be able to help you purchase home because they all do different things um and then right here you can see this green arrow there's one instance of where the seller actually will pay you a little bit you're still gonna have closing costs that go to other people but there's a time when you are also going to get closing costs uh paid by the seller okay and so what's interesting here is you have both an arrow going towards the seller and coming back to you so the error going towards the seller is you're paying them money for the home right maybe you're purchasing home for 300 000 and you're paying the seller that amount of money however you can negotiate for the seller to pay closing costs as a credit towards you or to you so in the census this is where you can negotiate seller credits and seller credits are just where you in the contract uh when you make an offer on a home you ask the seller to pay a percentage of the purchase price towards your closing costs and it's important to remember the more that you ask for the less competitive your offer is because think to the seller if the seller has two offers and one person is saying i don't need to help with uh closing costs and the other person is saying i need five thousand dollars to help with the closing costs well the seller gets five thousand dollars less over here they're less likely to go with that offer so it's important to keep that in mind so different loan types allow you to have different limits with closing costs okay so for a conventional loan um here is all of the uh different uh silicon concession limits on conventional loans and it's a little bit confusing and complex so basically if you have less than ten percent down on a commercial loan you can do up to three percent 10 to 15 10 to 25 down is six percent greater than 25 down you can do up to nine percent and if it's an investment property up to two percent so you don't have to ask for any but these are the maximums so on a conventional loan with less than ten percent down you cannot ask for four percent seller concessions commercial loans will not allow it on fha loans you can ask for up to six percent on va loans you can ask for up to four percent and on usda loans you can ask for up to six percent and keep in mind the more that you ask for the less competitive your offer does become but this can be a strategy that you use to help lower some of these closing costs okay so then what ends up happening is you have all of these people that we talked about earlier who are helping you close on a home they're providing all of these services to help you be able to do this all of these are going to then be itemized on a document called a loan estimate and your lender is going to prepare this document that basically is going to give you a map a general estimate of all of the fees that are happening now at this point your lender doesn't actually know the bottom line number which which can be frustrating like i know it's frustrating but the reason they don't is because we had all of these people here right the lender day one when you sign your contract doesn't know what every single one of these people is going to charge for the services that they're going to provide to you and so what ends up happening during uh while you're under contract which is normally 30 to 45 days those fees are getting finalized so usually your loan officer is getting invoices from the title company for instance from your homeowners insurance agency they're finding out what taxes are going to be they should have a good idea of what it's going to cost to record with the county so they're trying to finalize these fees so what they would do first is they give you a loan estimate and the loan estimate is just that it's an estimate of the fees of what they think you're going to run into as the final cash to close so they're gonna they know what your down payment is based on the loan type and they're going to estimate your closing costs based on some other information from the loan and they're required to give this to you three days after you're under contract for a home so then during the time that you're under contract they're working on finalizing those fees to give you then a closing disclosure and a closing disclosure actually has two more pages so you can see there's three pages over here five pages over here and the closing disclosure is required to be given to you uh three days at least three days before closing okay so the closing disclosure is very similar to the loan estimate but it should have those fees more locked in so they're getting more accurate numbers so you can figure out what the total cash to close is so normally when that ends up happening is a loan estimate is quoted maybe a little bit higher than it actually will be and then ideally you'll get a closing disclosure and it should be a little bit less okay if you're working with a good loan officer they should be estimating uh in a way that helps you understand a good ballpark of where it's at but in a way where you're not going to get the closing disclosure and costs are going to be more because nobody wants that unexpected jump in costs and this is what one of the pages of the closing disclosure looks like and it does a couple different interesting things here the first thing is it actually compares the loan estimate versus the final closing disclosure fees so it helps you compare side by side what everything is but then it also uses a system of debits and credits to figure out what your cash to close is and this can be a little bit confusing and it's not too i wouldn't be too concerned about like feeling like you have to figure it out i think it's just interesting to note where all these numbers coming from and how are they coming together with all this because what it is is they're taking basically everything in this section and then subtracting everything in this section from it so you have all your debits up here in the top section and the credits below so for instance the sale price of the home hundred and eighty thousand dollars all of us right away we have a 180 000 bill due uh okay then we have closing costs nine thousand dollars on top of it okay so we have this big bill due well the loan covers 162 000 that's removed from the 180 000 then we also have an earnest money deposit and so you'll see this on your own closing disclosure where it's itemizing every single thing and then showing you all the adjustments with it to give you that cash to close okay so at this point you're probably like all right there's a lot going on with closing costs there's a lot of people charging closing costs how do i keep these low well there's a couple different ways that we can do this the first one is to shop lenders this is the one that most people are common with but it's important to realize the lenders only control the lender's fees right if we remember back to that other slide where we saw all of those people in there the lender was only one piece of the puzzle there are a lot of other people who are charging fees in there as well your lender will only control their fees they cannot control everyone else's fees but sometimes people have this assumption that they will then shop lenders and the lender will then control all the fees and that's just simply not the case the lender will only control their fees so you when you shop with lenders you only want to see what are your fees and so these are called section a fees it's directly what the lender charges because sometimes what can happen is you might talk to one lender and in the loan estimate they're estimating that the title company is going to charge two thousand dollars you talk with another lender and they're estimating the title company is going to charge three thousand dollars sometimes people make the mistake and they're like well title fees are cheaper with the first lender so i'm going to go with them they're estimating they don't know what the title fees are they don't control the title fees so don't choose a lender based on fees that they don't control only choose a lender based on section a fees the fees that the lender directly controls also shop for homeowners insurance for a lower rate so you can shop for any homeowners insurance that you would like and you could put in potentially choose a higher deductible if that would help you lower that cost as well you could also ask for closing cost credit from the seller that is probably the easiest way to get this done so asking the seller for again back to that limit maybe it's three percent maybe a six percent maybe it's four percent um or anywhere in between uh you can also talk to your lender about getting a lender credit and then also exploring grants or down payment assistance options with your lender see if that's something that you have access to also something that you can do is ask for long probation if that's not already common in your area so different counties handle this differently so in uh in my area there's actually a difference between short proration and long permission and all probation basically means is since taxes are normally paid semi-annually or annually there's gonna be a time when you move into the home you're gonna get a tax bill for a time that you weren't in the home and so probation is just when the seller at closing is giving you a credit in advance for that tax bill that's about to be due and so in around here you can actually do a long period which is i'm not going to go into like the history of it a little complicated but basically you can get an extra six month tax credit from the seller and that can be a really great way to add in some closing costs credit if you need it and again this is all negotiated in the contract so the seller doesn't have to agree to that uh explore not getting an owner's title insurance policy now this is uh both risky and optional um but basically what happens is you have when you look at your loan estimate you're going to have an optional owner's title insurance policy and this helps protect you against any errors found in the recording of of your deed or of your mortgage any title issues that you run into is going to cover you for and it can be really risky to not have it sometimes if you're really strapped for cash it could be an option and usually title companies will allow you to then purchase a policy sometimes 60 or 90 days after you close on a home definitely talk to your title insurance agent about that because it is extremely risky to do and you need to make sure you understand the risks of doing it before you actually choose to waive that fee explore lender credit so what you can ask your lender for is actually a higher interest rate in exchange for a credit towards your closing costs if you need help there and then also look at closing at the end of the month it doesn't have to be on the last day but if you do close at the end of the month it reduces the amount of prepaid interest that you have to pay in between the time that you close and your first payment is due to help lower closing costs a little bit so only probably going to save you a couple hundred bucks but if you really need that or you're doing a combination of all these those can help add up to some pretty good savings for you so when does all this do that is one of one of the big questions that people have so the cash to close oops that's an eraser the cash to close is due at closing okay so when you look at your loan estimate or your closing disclosure you're going to get probably multiple versions of those while you're under contract for home and those that bottom line cash to close is not due until closing and closing looks different for different lenders and different people but normally what's standard is you come to a closing table there's a closer there maybe your lender or your realtor is there you bring a check for your cash to close so this would be a cashier's check or a wire transfer and that money is due at the closing table however there are a couple charges that are required up front so something like the appraisal that's due up front if you have a home inspection usually the inspector is going to require to be paid up front and then if you have earnest money that is due up front as well it does get applied as a credit towards your closing cost since you already paid it but it is due up front everything else like your down payment and all other closing costs are only due at the closing table so can closing costs be rolled into the loan the disappointing answer for most people is going to be no so for instance on a commercial loan no fha loan no va loan no you cannot roll closing costs into the loan so if you're purchasing a three hundred thousand dollar home and your closing costs are nine thousand dollars you can't just say give me a loan for three hundred nine thousand dollars it does not work that way the only instance when you can do this uh actually can wrap closing costs into a loan is on a usda loan if you have a ufc alone and you're purchasing it a home for three hundred thousand dollars and it appraises at three hundred and ten thousand dollars you actually can wrap up to ten thousand dollars of closing costs into the loan the only way around this is to wrap closing costs into the purchase price so the way that you would do this is if you're looking to buy a three hundred thousand dollar home and you need let's say uh try to think of a an easy let's say nine thousand dollars in closing costs uh so you want that as a credit from the seller that's three percent so you can then ask the seller for three percent of the purchase price and closing costs but you're then going to offer three hundred and nine thousand dollars okay and the math is not exact here i would need a calculator to do three percent of three hundred nine thousand dollars maybe you can do that in my head yeah probably not we'll skip it uh so what you would then do is increase the purchase price to be able to get that closing cost credit back so instead of offering 300 000 we offer 309 000 and ask for 9 000 back in closing cost credit now one important note is refi are different uh so if you're purchasing a home you cannot wrap closing costs into a loan if you're refinancing usually on most loans you can wrap some some amount of closing costs into the loan amount but re-fi's are a completely different story so what if you can't use all of the the seller credit so let's say the seller gave us nine thousand dollars in closing cost credit um but we our closing costs are only eight thousand dollars so we have a thousand dollars left over what do we do well one thing we can do is renegotiate so we can just make an our realtor have an addendum to uh the contract that says we're going to lower seller credits from 9000 to 8000 and maybe if you want lower the purchase price by a thousand dollars okay that's something we can do is renegotiate because we don't need all that closing cost credit anymore the other thing that we could do is we could purchase points and what you do there is it's kind of the inverse of a lender credit so instead of asking for a higher rate and a credit from the lender we actually ask for a lower rate but we're willing to pay think of it like prepaid interest we paid to lower our interest rate that is something you can do if you have closing costs concessions from the seller leftover and then do different loans have different closing costs for the most part no because if we think of things like title home warranty appraiser all those types of things usually are not going to change in cost between the different loan types however the main thing that you will see as the closing costs change is anything with upfront mortgage insurance so fha loans va loans usda loans all have their own type of mortgage insurance that is charged up front okay usually conventional loans don't unless you choose to have upfront mortgage insurance on a commercial loan so for instance on fha loans there's going to be 1.75 percent of the loan amount added to the loan as upfront mortgage insurance cost va has a funding fee and then usda has what they call a guarantee fee as well and so that will change your closing costs however those fees are usually added to the loan and you won't pay them up front so i know this can be this can be confusing if you're at this point like this is a little confusing uh and overwhelming it's okay it's okay to be there it's okay to be like i have no clue what's going on this is frustrating it's a lot of information really the whole goal here is just to help get you acclimated to some of these numbers because your loan officer will be able to guide you through a lot of these fees as well when they give you a loan estimate and then also do you have to prove that you have the money um so for most people yes uh and so normally what a loan officer will ask you for is two months of your bank statements and so what they want to see is that you didn't go take out a personal loan for your closing costs or your down payment um and since uh 2001 with a patriot act they also have to check for instances of fraud or money laundering which can be very frustrating to have to you know that you have to show so much information from your bank statements for but what you will need to do is have two months of bank statements to show that you have the money there and it's really it's a lot easier to give this to the lender as early as you can in the transaction so they can make sure that they can see all the money is in your account so for instance if your cash to close is going to be twenty thousand dollars the lender then needs to see bank statements that would show the twenty thousand dollars in an account so that they know that money is from a source that they accept and you'll have the money ready for closing okay and then finally how do you estimate these fees um one quick and easy rule is two percent of the purchase price so uh for a three hundred thousand dollar home two percent would be six thousand dollars uh and so you can estimate six thousand dollars as your closing costs probably a decent roll of thumb but there's it's not as refined as you probably would want it to be another option is there is a loan estimate explainer link in the description they'll help you take a look at a sample loan estimate and see what sample fees can look like you can also talk to a lender and ask them to give you a quote for closing costs as well and they can itemize and estimate all these other fees and then finally i have a loan estimate walk through it's about 25 to 30 minutes of me going through a loan estimate line by line and explaining all of the different sections like section a lender fees and everything that you need to watch out for in your own loan estimate so you can get a better understanding of closing costs so if you're interested in that you can click this video right over here

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