In the exciting world of real estate there are often many terms both realtors and lenders use frequently, so for us it’s pretty basic lingo. The problem is, for the average buyer/seller understanding the terms used can in itself be a conundrum(aka problem difficult to understand). In my experience, the top misunderstood terms are: closing costs,down payment, cash to close & seller’s concessions; this is because many times they are used interchangeably. l am going to attempt to explain these terms a little better and hopefully get rid of some of the confusion surrounding them. Ready, Set, Keep Reading!
First let’s tackle DOWN PAYMENT. Your down payment is dependent and defined by your loan type and nothing else. Your down payment lowers the principle amount of your loan. For example, if you are getting a FHA loan your down payment amount would be 3.5% of the purchase price of the house, so if the price of the house is $150,0000 your Down Payment amount would be $5,250. Your down payment of course varies depending on your loan type such as FHA, Conventional, USDA, or VA. Some loans don’t require a down payment at all. If you have questions about loan types available you can start by reading my blog about loans here and then talk to a good lender. Now, if you have ever bought a home you know that sometimes your down payment isn’t the only thing you have to pay. That’s where the next term comes in Closing Costs.
In a nutshell, CLOSING COSTS are essentially all the other costs involved with the closing of your loan. These will vary depending on your lender but some of the most common ones are : title fees, recording fees, prepaid home insurance, prepaid taxes, loan discount points, underwriting fees, and origination fees just to name a few. Your closing costs can vary anywhere from $2000 to 5% or more depending on your lender. There is not a standard amount of closing costs. We won’t go in depth with those because most are pretty self explanatory and it would make this blog super long; if you want more details about your individual closing costs, talk to your lender. The part we need to concentrate on is that these costs are required for every loan that is processed regardless of loan type. So even if you are getting a $0 down payment loan you will still have to pay closing costs. Not to worry though, that leads me to our next term, Seller’s Concessions.
SELLER’S CONCESSIONS is more of a real estate term than a lender term. Without going in depth to much, this is an amount the seller can credit a buyer at closing. Seller’s Concessions can be used to pay for some of the buyer’s closing costs as allowed by the lender. Some examples prepaid items, discount points, & origination fees. Depending on your loan type and lender there can be limits on the amount of Seller’s Concessions the seller can credit a buyer, you should discuss these further with your lender. If you are lucky enough to get a seller to agree to credit you some concessions it can definitely lessen the burden and costs of buying a home. Remember though, a seller is not required to give you concessions, it is always optional, varies from person to person, and has to be negotiated as a part of the contract. It is important that you always discuss with your agent if you need to ask for seller’s concessions prior to writing an offer.
The last term that is often used interchangeably with the terms we already discussed is CASH TO CLOSE. This is where it sometimes gets confusing, but ill explain further. Your cash to close is how much money you are responsible for bringing to the closing table. This amount includes both your down payment amount (if required by your loan) and your closing costs. If a seller agrees to credit you some Seller’s Concessions, this amount will likely be less at closing than the amount your lender originally quotes you. Your lender will generally quote you the total down payment and total closing costs needed as your Cash To Close. This is because, as we discussed earlier seller’s concessions are not required or guaranteed and are always negotiable, so your lender wants to make sure you are aware of how much money you could potentially need to close on your home.
Hopefully, now you have a better understanding of some of the most misunderstood terms in real estate. If you have any questions or if you would like to buy or sell a home I would be happy to help. Give me a call at 970-370-0135 or stop by my office at 201 Clayton St, Brush CO.
***The information contained in this blog is based on the opinion of Adriana Otero, Broker Associate. Information is meant for informational purposes only and is not meant to constitute legal advice.Information is deemed reliable but not guaranteed. It is recommended that you talk to a lawyer or lender for more detailed or legal information.***