Orion’s brokers know that your client’s down payment isn’t all they need to bring to the closing table when they buy or refinance a home. Closing costs are expenses beyond the down payment, such as appraisal fees, attorney fees, Fed Ex costs, escrow funds, and a dozen others, that you may pay on closing day. Put another way, for someone buying a home, they will need a down payment as well as money for the loan itself.

Our brokers tell us that they’ve found that first-time home buyers often underestimate just how much they’ll need to pay in closing costs, although there are ways to reduce how much they’ll pay. Closing costs are paid when your client closes on their mortgage and cover the fees for services like a home appraisal and searches on the property’s title. The specific closing costs your client will need to pay depend on the type of loan your client’s obtains and where they live.

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Brokers advise clients upfront that closing costs are typically 3-6 percent of the loan amount. This means that if they take out a mortgage worth $400,000, the borrower can expect to add closing costs of about $12,000 – $24,000 to their total cost. These don’t include the down payment and are more expensive in states with high costs of living and home prices. At least 3 business days before your client attends closing meeting, they are provided with a document called the Closing Disclosure. This will list every closing cost your client needs to cover and how much they owe.

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Fortunately, Orion’s AEs work with our clients to help reduce closing costs for your borrowers: we often suggest ways for clients to pay for closing costs on a mortgage in addition to offering very competitive mortgage rates. The majority of our clients pay for closing costs in cash, but there are some considerations. This is a way for brokers to add value: they know how closing costs can eat into savings at a time when your client has little extra money to spare. Your client usually doesn’t want to dedicate too much of their savings to paying for closing costs just to risk depleting their emergency fund, should an unexpected expense arise.

One way is to roll closing costs into the mortgage. Depending on the type of mortgage your client is about to have, they may be able to roll most of their closing costs and fees into the balance of the loan. For example, Orion offers FHA loans which allow first-time home buyers to include closing costs in the loan amount. Or if your client is refinancing their existing mortgage, they can typically roll their closing costs into the new home loan. Experienced brokers will make sure that the closing costs aren't too high to offset Orion’s lower interest rates.

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Another common way to cover closing costs for a home purchase is to ask the seller for concessions during the negotiation process. Instead of offering a lower price for the house your client wants, they could offer the full asking price and request that the seller absorbs 5 percent in closing costs. The maximum dollar amount of concessions they can ask for varies depending on the type of mortgage loan they’re approved for. But in today's real estate market it may be difficult to negotiate closing costs with a seller. Asking for concessions may make your client’s offer less appealing, and a seller who gets multiple bids on their property is likely to disregard any offers that include concessions.

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Lastly, some 401(k) providers allow people to take a loan against their retirement account or make an early withdrawal in order to pay for costs associated with buying a house, including mortgage closing costs. This is not used very often, and Orion advises brokers to tell clients to speak with an accountant. There are tax implications or possible early withdrawal penalties, as well as maximum withdrawal percentages.  

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Helping our broker clients help your borrowers decide on options like this is just one of the ways Orion can help!

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