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When you buy a home, you’ll have to cover a number of expenses, including your down payment, certain inspection fees, and closing costs. Not sure how to get money for closing costs? Learning more about closing fees will help you prepare for these expenses and get access to the funds you need.


What are Closing Costs?

Closing costs are expenses and fees that you pay when you finalize a home loan. Typically, these fees are equivalent to around 2 to 5% of your total mortgage. When you’re buying a new home, fees can add up quickly, which is why you’ll want to make sure that you’re prepared to cover extra costs you may not be thinking about when you figure out your budget for a new property.


Some of the costs you may be expected to cover include:


Lender Fees

Lender fees refer to any charges associated with processing, funding, and approving your loan. Total costs can vary, but most homebuyers pay fees equal to 1 to 2% of their loan. 


Property Fees

Property fees are costs related to the property that you’re purchasing. Potential expenses could include a home inspection, home warranty, realtor commission, and transfer fees.


Calculating Your Closing Costs

Before you can determine how to get closing costs covered, you’ll want to estimate what your expenses are likely to be. Expenses related to closing should be outlined in the Loan Estimate that you receive from your lender. Don’t hesitate to ask questions to get a more accurate picture of what you’ll be paying.


Ways to Pay Closing Costs

If you’re not sure how to pay closing costs, you’ll be glad to know that there are plenty of ways to cover your expenses. It’s not always possible to avoid these expenses, but there are plenty of creative and feasible ways you can go about financing closing costs. 


Roll into Your Mortgage

Can you include closing costs in a mortgage? Different lenders have different policies, but many will allow you to roll some of your closing fees into your loan. This will increase the total amount you borrow so you can pay for miscellaneous fees associated with closing escrow and finalizing your purchase of the home. 


While this can save you money upfront, you should be aware that this will increase your monthly mortgage payment. Adding closing costs to a loan also means you’ll pay more interest over time.


Ask Your Lender

If your closing expenses are higher than you’d like them to be, don’t hesitate to reach out to your lender and negotiate. Some fees aren’t open to modification, but others could potentially be waived or reduced. 


The costs your lender might be most likely to lower include the loan application fee, underwriting, and origination fees. Fees that can’t be negotiated include property taxes, appraisal fees, and credit checks.


Ask Your Seller

When buying a home, it’s not unusual to ask the seller to cover a portion of your expenses. Closing costs paid by the seller are referred to as seller concessions. If you plan on asking the seller to cover closing costs, be prepared to offer something in return. For example, you might come to them with a higher offer on their asking price, or maybe you’ll be willing to forgo certain repairs.


Government Assistance

It’s not unusual to wonder things like “What if I can’t afford closing costs,” especially if you’re buying a home for the first time. If you don’t have the funds for closing costs, there are several government programs that might be able to help you cover these expenses. 


For example, you may be able to obtain a second forgivable mortgage through the First-Time Homebuyer Program. You can use those funds to put towards closing costs. Home buyers who are eligible for the First-Time Homebuyers Loan may also qualify for extra financing that can help pay unexpected or large fees related to the purchase of a new home. 


Use a Gift

Gifted money can be used to cover many expenses related to your home purchase, including your down payment and closing costs. With that said, some lenders require that those funds come from a blood relative and are accompanied by a gift letter. 


A gift letter should include the dollar amount of the gift, the donor’s name and address, and the donor’s relationship to the borrower. The letter should also state that the gift does not need to be repaid.


Personal Loan for Closing Costs

Can you get a loan for closing costs? While mortgage lenders usually won’t allow buyers to use a personal loan to cover a down payment, some will approve using a personal loan for closing costs. 


Before applying for any personal loans, it’s important to talk to your lender and confirm that the loan won’t have an impact on your mortgage approval. If your lender does allow personal loans, shop around to find the best interest rates.


Final Thoughts

While closing costs can be a significant expense, there are plenty of ways to secure the funds you need. Whether you opt to roll your fees into your mortgage or try to negotiate with the seller and lender, there are many options that will make these costs easier to manage.


 If you have questions about closing costs and other expenses related to your home purchase, don’t hesitate to reach out to Island Federal! We’re excited to help you with the home buying process.