Intro: Many people, especially first-time home buyers, are concerned about closing costs. This holds particularly true if the potential buyer also has to come up with a down payment toward the new home. However, options do exist that will help these buyers, making the process easier to manage. Boise real estate agent and associate broker, Jace Stolfo has some insight into some possible solutions for this home buying challenge.
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Ask the Realtor:
I'm a first-time homebuyer concerned about closing costs. How much can I expect to pay in closing costs and is there anyway to offset some of the costs associated with closing?
Typically, closing costs on a home amount to about 3% of the loan amount. Understandably, a common concern that comes up is there won't be enough money for the downpayment and the closing costs. Many homebuyers, particularly first-time homebuyers, wonder what they can do and what they can expect with this.
It is very customary for first-time home buyers -- but certainly not limited to first-time home buyers -- that there is a need for some sort of assistance to come up with those additional funds. In a lot of circumstances, you can negotiate that into the offer, where the seller will give you a, say 3% allowance, towards buyer's closing costs and pre-paids. This will allow you to focus on just saving up for your downpayment without having to come up with those additional funds.
Possible Downsides for Handling Closing Costs This Way
Now keep in mind that from the sellers' perspective that doing something like this is going to affect their bottom line. So in theory, if you did not ask for closing costs, you could negotiate a lower purchase price.
For example, if you're getting a closing cost allowance, the purchase price is probably going to end up a little bit higher than where it would, which essentially means your mortgage is going to be a little bit higher. But that additional cost on say a 200K house, if you got 3% of the purchase price, that would make the mortgage price about $6000 more than it would have been. For most homeowners, this cost is doable when it's spread out in a long-term home loan.
Final Thoughts on Managing Closing Costs
On the other hand, for some people, it makes more sense that they'd rather have $6000 in savings than have their mortgage payment just slightly higher. In this case, these buyers would pay the closing costs so that they have a lower mortgage rate.
Still don't know what's best for you? It really depends on your circumstances as the homebuyer. To help you determine the best route for you to take, talk to your Realtor. Most real estate agents are very cooperative and will help negotiate these types of offers.
About Ask the Realtor
*Ask the Realtor is a regular feature for the Boise Interior Decorating column, which is published each Tuesday. As always, the information here is for informational purposes only. If you need more in-depth information about your particular home buying/ home selling situation, contact a Realtor in your area.
Jace Stolfo is a licensed Realtor in the City of Trees. His company, Boise Real Estate Plus, LLC with Keller Williams Boise operates in the Boise real estate market. Jace is a Platinum Level Top Producer for the Treasure Valley and has been for the years spanning 2009 to 2013. If you'd like more information about the Idaho real estate market, drop him a message here.