The Cost of Closing: It’s About More Than the Down Payment


If you are planning on purchasing a home and are wondering how much money it will take to get into it, this information may help.

The minimum down payment when purchasing a home using an FHA mortgage is 3.5 percent.  Conventional mortgages, meaning those using Fannie Mae or Freddie Mac guidelines, now have a minimum down payment of 5 percent.

However, bear in mind that there will be additional costs above and beyond the down payment, including closing costs, asset reserves, and escrow accounts.

FHA has no asset reserve requirements, but conventional mortgages require two months of mortgage payments, including taxes and insurance if applicable, as a reserve.

Depending on the property’s location, your lender may require that a number of months of property tax reserves be placed with the taxing body. You need to be aware of this so that you have an idea of what tax reserves, if any, you’ll need when closing.

Depending on your situation, you may receive seller and/or lender credits to help offset additional costs. These credits may be used for closing costs, asset reserves, and tax reserves only.

Your down payment must come either from your own funds or in the form of a gift from a close relative. All lenders require this to ensure that you as a buyer have a vested interest in the property; it’s assumed that those with a financial interest in a property are more likely to work hard on resolving potential financial challenges when and if they arise.

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