This is a reminder that lenders, sellers, and Realtors can credit commissions or proceeds for closing costs.
Closing cost credits are often necessary to help cash-starved borrowers close transactions, as total closing costs can easily exceed $10,000 for even inexpensive homes, depending on transfer taxes and other fees local to a particular county.
Closing Cost Credits can cover both non-recurring and recurring closing costs, including transfer taxes, hazard insurance, property taxes, HOA dues, interest, and impound accounts.
Substantial recurring closing costs often make allowable credits much larger than people realize, especially if there is an impound account or substantial transfer taxes.
Closing Cost Credits cannot, however, “prepay” HOA dues, property taxes, or hazard insurance beyond levels that are normally paid at escrow. People sometimes attempt to prepay such items in an attempt to eat up excess credits.
Nonrecurring Closing Costs (NRCC)
Nonrecurring closing costs include the one-time fees that buyers pay only at the time of purchase. These costs include the escrow fee, the title insurance, the appraisal fee, the underwriting fee, the notary fee, the recording fee, and the transfer taxes, among other things. These fees can range from $4,000 to $20,000 (or more) for a purchase with no discount points or origination fees, depending on the size of the purchase and the amount of transfer taxes.
Recurring Closing Costs (RCC)
Recurring closing costs include any costs that recur after the purchase closes. These costs include prepaid interest, property taxes, hazard insurance, and HOA dues. Recurring costs are significantly larger if there is an “impound account” because lenders will collect four to ten months of property taxes and up to fourteen months of hazard insurance upfront to fund the impound account.
Questions? Keep In Touch With JVM Lending
If you have questions about closing costs or how to use closing cost credits, contact JVM Lending. Our expert Mortgage Analysts and Client Advisors are available 7 days a week to answer questions and guide you through the homebuying process.
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