Closing costs on HomeReady™ loans are similar to the closing costs on any other conventional loan, since the product is owned by Fannie Mae. Lenders are typically in charge when it comes to determining the amount of money they want to charge for each loan. There are, of course, guidelines they must abide by, but chances are that you will not find the same closing costs for any two lenders for the same program. In addition, many lenders enable you to opt out of the closing costs in exchange for a slightly higher interest rate, enabling the lender to pay the closing costs for you. Of course, you will have to ensure that your debt ratio allows for the slightly higher interest rate in order to do that.
Typical HomeReady™ Closing Costs
In general, closing costs total between 1.5 and 2 percent of the loan amount. The standard closing costs charged include:
- Discount points
- Origination fees
- Underwriting fee
- Processing fee
- Credit report processing
- Flood certification
- Title search
- Title insurance
- Recording fee
How Costs are Determined
If you notice that two different lenders provide you with completely different closing cost quotes, you are not alone. It is up to the discretion of the lender regarding what fees they charge. Some lenders strictly charge an origination fee, lumping all closing costs into that fee, while others itemize each cost as you will see on the Good Faith Estimate that the lender is required to give you within 3 days after applying for the loan. There really is no better way to do it – you can pay them itemized or as one sum; either way you are paying the closing costs.
Getting Help for Closing Costs
The good news is that you can get as much help as is necessary to pay the closing costs on HomeReady™ loans. There is no minimum borrower contribution when you purchase a one unit home. If you purchase a multi-unit, however, you are required to put 3 percent of your own funds into the loan, but that money typically goes towards the down payment – the closing costs can still be paid by others including relatives, your employer, or a grant. You are also eligible to use cash-on-hand that you might have lying around if you have a history of paying your bills and other large purchases in cash.
Negotiating Closing Costs
HomeReady™ Loans allow you the opportunity to negotiate your closing costs. If you shop around with several lenders, you have a better chance at negotiating your closing costs as you are able to show other lenders what you are being offered. Remember that every negotiation for closing costs typically results in a slight increase in your interest rate in order to make up the difference. Before you agree to lower closing costs, determine the effect it will have on your payment so that you can make the choice that fits your finances the best.
HomeReady™ Loans are known as one of the most affordable conventional loans available today, including the amount of closing costs they charge. You can expect your closing costs to be lower than they would be on a standard conventional loan, but you should also expect to need to bring some cash to the closing, whether it is your own cash or cash from someone that is willing to help you become a homeowner. If you live in a low-income or high-minority census tract, this loan program is the most valuable product available to you, allowing you to get the most for your money.Click to See the Latest Mortgage Rates»