As a real estate agent, you may already realize that some buyers overextend themselves when house hunting. They make an offer that is at or over their maximum financing amount and then find themselves struggling to cover closing costs and to get the property into livable condition after they have a bid accepted by the seller.
For those frantically trying to balance budgets before signing final paperwork, closing costs can become more than a source of frustration. They can be a real sticking point, leaving people struggling just to have enough money to cover the amount due.
Identifying the questions your client may have about closing costs can help you offer better service to your buyers.
Can they reduce their closing costs?
The first question buyers usually have is whether any of the closing costs are optional. With the exception of the buyer’s title policy, most of those closing costs are not expenses that a buyer can cancel or opt out of during a purchase.
However, your client may be able to minimize those expenses by choosing their own title company, which they have the right to do, and negotiating with their mortgage broker.
Do they really need two title policies?
People buying a financed home often have one burning question. Why do they have to pay for two different title insurance policies? The answer is that one is to protect their lender and one is to protect them as the buyer. They cannot cancel the lender’s policy, and they leave themselves vulnerable if they cancel the buyer’s policy.
What is PMI?
Sticker shock can apply to the estimated monthly payment on a mortgage, not just to the amount due at closing. When people come to the closing table with less than 20% down, their lender will likely require private mortgage insurance (PMI). They’ll have to pay for coverage in case they default on the mortgage until they accrue 20% equity through a combination of their down payment and their equity.
How can you pay these costs?
If someone already put in a bid on a property and the amount they offered was the maximum financing amount from their lender, they won’t be able to draw on their mortgage for the thousands of dollars due for their closing costs.
Buyers may need to get creative about how to cover those expenses. From taking out a personal loan at a bank to borrowing money from family or even using credit cards for a short-term loan, they may need to find alternate ways to cover those costs so that they can close on the home.
Having answers readily available for the most common question people have about the closing costs for residential real estate transactions can help you get your clients to the table without conflict or confusion.