to ensure the purchase price does not exceed the market value of the home.
Lenders will not lend you more money than a home is worth, if the LTV (loan-to-value) ratio exceeds the maximum percentage your loan allows, you’ll need to re-negoiate the purchase price with the seller.
If this is every the case, sellers are usually open to lowering the selling price because if the appraisal is below the selling price, most buyers will not be able to get a loan on it.
A home appraisal costs between $400-$600 on average. This is a cost that will come upfront out of your pocket, and is paid directly to your lender. It cannot be rolled into the loan, and is not refundable for any reason.
Closing costs are fees charged by lenders that include several items wrapped up into one.
The average closing costs in the U.S. is between 2% – 5%.
Closing costs cannot be rolled into your loan. However, you can reduce the amount of up-front money you need by having the seller pay some, or all of your closing costs.
Most mortgages allow the seller to pay between 3%-6% of the closing costs.
Maximum Allowable Seller Paid Closing Cost by Loan Type
FHA mortgage – 6%
VA mortgage – 4%
USDA mortgage – 6%
203k mortgage – 6%
Conventional mortgage – 3%
Breakdown of Closing Costs and Fees
A fess charged by lenders for processing and issuing the loan
Discount points are pre-paid interest you pay up-front to lower the mortgage rate
Lenders order a home appraisal to get the market value of the property
Fee for pulling a copy of your tri-merged credit report and scores
A title company will perform a check to see if there are any liens or issues with the deed, or title
Owner Title Insurance
Insurance for the lender to protect them in the event there are any title issues
Some lenders will have a lawyer present at closing or review the documents
– Fee charged to cover the underwriting of the mortgage
Pre-paid property tax
– 2 months worth of property taxes is usually paid upfront
Covers the cost of having the home inspected by a certified home inspector.
Fees charged for any courier fees or FedEx, UPS services
Lender require you have additional funds in reserves when closing on a mortgage. This makes sense, they don’t want to give a ton of money to someone to get a mortgage that is going to leave them penniless.
Typically lenders will want to see between 2-3 months of mortgage payments in savings.
The Lenders Network has the largest network of mortgage lenders that specialize in home loans for borrowers with all types of credit scores. We will match you will the best lender based on your specific situation.
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