How Much Cash Will I Need To Close My Mortgage Loan?

 This amount can be near zero, depending on how you structure the loan and your purchase contract.

If you get 100% financing you don’t need money for a down payment.

However, there are numerous closing costs to consider, and these can easily add up to thousands of dollars.

Your closing costs are initially estimated in the form of a Good Faith Estimate (GFE).

This is the “quote” you receive within 3 days of making a mortgage application. 

The following is a summary list of the types of charges on the GFE:

• Loan fees

• Fees to be paid in advance

• Reserves (taxes, etc.)

• Title charges

• Government charges

• Additional charges

Generally the largest area of expense, and the most variable, is the “loan fees”.

The largest of these are usually a percentage of the loan. Each percent is known as a “point”. These loan charges are both from the lender and the broker, if there is one.

The fees for a refinance are often included in the loan. Refinances mostly don’t require any cash to close, except for the cost of the appraisal (around $300 or more, depending on property value). If people had to cough up money, they wouldn’t refinance.

The loan fees are usually the single largest source of expense for a loan.

Often a “no cost” loan is advertised. This is because the charges are added into the loan, both in its size and its mortgage rate. This is why the interest rate charges on “no cost” loans are usually higher.

Closing costs, outside of the down payment, are usually 1%-3% of the loan value, but can be higher.

Minimizing closing costs

One option to minimize closing costs is to get seller concessions. A seller wanting to sell a home for $400,000 may offer you the house for $405,000 with a $5,000 concession to cover closing costs. You may be able to negotiate this amount with a seller. Many lenders allow these seller concessions, but usually cap it as a percentage of the sale price (up to 3%, 6%, etc.)

The seller can raise the price of the property by the amount they will help you with closing costs. In this way it doesn’t cost them anything. Another option is that they just eat the costs because they want to sell the property and move on.