Buying your first home can be a daunting thing to do. There is much planning that should be done. You need to make sure the you are prepared to begin making a mortgage payment. Once you have decided that, yes, this is the time (and this is a very good time with prices where they currently are) then it is time to talk to a lender. A good Loan Officer can walk you through the process of buying a home, in addition to getting you Prequalified and then even Preapproved for a loan.  A very important part of getting Prequalified or Preapproved is getting an accurate estimate of the total funds needed to close escrow on a home.

If a buyer is looking for a home in the $350,000 price range, on an FHA loan that buyer will only be required to pay the 3% down payment, which would be $10,500. If the buyer doesn't have the money already in the bank, the money can be a gift from a relative, or even come from a loan from a retirement account, such as a 401K.  But there are closing costs to be considerer ed as well. Closing costs are broken into two categories. Non Recurring Closing Costs and Recurring Closing Costs, also known as Prepaid Expenses.

What Fees are Included in Closing Costs for an FHA Loan?

Non Recurring closing costs include lender fees such as appraisal, processing, underwriting, loan docs preparation, flood certification, and credit report. They also include escrow company fees, title insurance fees, and recording and notary fees. Many of these fees can be estimated to the penny, but some of them can vary somewhat, depending on the price of the home, and the companies used for escrow, title, or lending.

Recurring Fees, also called Prepaid Expenses, include interest, taxes, and insurance. These are "Recurring" or "Prepaid" because they will continue even after the escrow is closed. Also, these fees will not vary from lender to lender. But I have found that most lenders/loan officers are not very accurate in projecting a breakdown of these fees, which can create stress if the buyer is short funds to close escrow.  For example, depending on the month of the closing, setting up an impound account for property taxes could require just a few hundred dollars. But if the closing is near the end of the year, several thousand may be required.

The Seller Can Pay up to 6% of the Sales Price in Closing Costs for the Buyer

The good news is FHA allows the seller to pay Non Recurring and Recurring Closing costs. As a matter of fact, the seller can pay up to 6% of the total sales price in closing costs on the buyers behalf. On a $350,000 price, the seller would be allowed to pay $21,000 in closing costs. That figure is more than necessary, unless the buyer is trying to "buy" the interest rate as low as possible. I would estimate that having the seller pay somewhere between $10,000 and $12,000 in closing costs should get the job done.

The key is to know what the number is before you even make an offer. This is where most loan officers fall short. Below I've attached a Closing Cost Estimate and Payment Breakdown based on a $350,000 price with 3% down. This breakdown is identical to an FHA loan I just closed in Orange County, CA. The property was actually in Santa Ana, CA. This will give you a good idea of what would be required on a typical home purchase.  The interest rate is based on where rates are today, November 7, 2008. Interest rates change every day. Lately, they can change dramatically in either direction, so this estimate should be reviewed with that in mind.

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If you would like a Free Personalized Analysis for your own situation, please contact me at 877.786.4243 x 7. I would be happy to get you all the information you need.