You likely know that you need funds for a down payment for a mortgage, depending on your program, but did you know that there are other costs associated with a mortgage?

When you get to the closing table, you will have to bring what is referred to as “cash to close” on the Closing Disclosure that you will receive. As you will see on the Closing Disclosure, the cash to close is calculated with the Closing Costs, Down Payment, and more.

The Closing Costs are the upfront charges from the lender for making the loan including an application fee and an underwriting fee. This also includes the costs for the appraisal, a credit report, and attorney fees such as title and survey costs. Finally, it includes prepaids such as the first year of homeowner’s insurance, prepaid interest and taxes for the property. If you are buying a condo, it may also include HOA fees. This is all broken down on page 2 of the Closing Disclosure.

The Down Payment is simply the amount of money you are putting down up front to lower the loan amount. If you purchase a house for $250,000, and put 5% down, you will need $12,500. Your down payment amount varies with FICO, program, and with what you’re able to put down. Be aware that if you put less than 20% down, you will have to pay Mortgage Insurance, which will be covered in a later blog.

Here is a brief look at the program options:

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  • Conventional:
    • As low as 5% down with a FICO of 640 or higher.
  • MassHousing:
    • 0-3% Down, depending on income, with 660 FICO or higher
      • MassHousing has income limitations
  • FHA:
    • Low 3.5% down payment with a 600 FICO or higher
  • USDA:
    • 0% down program with a FICO of 640 or higher
      • USDA has income and property limitations

 

Additionally, you can pay for Points at Closing. Points are part of the origination charges, and are an upfront fee you pay to get a lower interest rate. 1 point is the equivalent to 1% of the loan amount.

If you want to see an example of the Closing Disclosure, the Consumer Financial Protection Bureau (CFPB) has an interactive one here.

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