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Last week the Fed raised the federal funds rate 25 bps instead of 50 bps, and mortgage rates continued to improve.  It’s likely the Fed eases their aggressive rate hikes and many expect rates to drop into the 5% range by Q4.The recent rate drop saves a $500k buyer over $300/mo.  This opens a window of opportunity for buyers who were sidelined by affordability concerns.

• Multiple offers are in full effect in many markets and buyers need to understand the driving factor:  lack of inventory.  The single family home sector is very low right now due to the “lock in effect”, and it doesn’t look to be improving anytime soon.

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Sales in February 2023 were up 14.5% month over month and still down 22.6% year over year according to the NAR Housing Snapshot.  The median sales price dipped 0.2% to $363,000 and there are 2.6 months supply of homes on the market compared to 1.7 months a year ago.

“Inventory levels are still at historic lows, and consequently, multiple offers are returning on a good number of properties.” According to Lawrence Yun, Chief Economist for the National Association of REALTORS®.

It is still important to have a strategy for potentially competing with other buyers on the house you want to buy.  The plan should include several available provisions and options, so that at the time of drafting the sales offer, you can consider exactly what to include based on the situation.

Unless a person is paying cash, you need to be pre-approved by a trusted mortgage professional long before you start looking at homes.  Include the written pre-approval letter along with the offer.  When you are making an offer on a home, have the mortgage professional available to reassure the listing agent by phone who will convey that to the seller.

If you’re concerned about multiple offers, make your best offer first because you may not get to counter and simply lose out to another buyer.  Starting with a low offer and gradually coming up doesn’t work in highly competitive situations.  In some cases, a low-ball offer could cast a pall on any consideration of your purchase contract altogether.

The listing agent will calculate the expenses on the different offers for the seller to show them what their net proceeds will be on each contract.  Some types of financing have more costs incurred to the seller.  Asking the seller to make repairs or other financial concessions could lower their net even though your offer may be higher.

From a buyer’s standpoint, contingencies provide options for things that may be uncertain like qualifying for a mortgage, discovery of major impediments to the condition of the home, and other things.  To the seller, they are obstacles that may invalidate the contract causing the home back on the market.  If the contingencies are necessary, try to make them as palatable to the seller as possible.

Instead of waiving your rights to make inspections, consider a very short inspection period to minimize the time the property is in limbo.  Instead of asking for repairs, provide a simple “accept or reject” once the inspections have been made.

Try to accommodate the seller’s desired closing and possession dates.  Sometimes an earlier date may be more desirable for a seller and other times, it might be a later date based on the home they’ll be moving into.  Your agent can do some research and find a flexible alternative that may appeal to the seller.

Increase your earnest money deposit more than the minimum.  It is a pecuniary indication that you are serious.  Your agent can tell you what that amount should be and alternatives like increasing the earnest money after certain contingencies have been met.

Escalation clauses state that you are willing to increase your offer by a certain amount up to a specified maximum, subject to another bona fide offer being received before yours is accepted.  Your agent will be able to further explain how these might work in your situation as well as share their experience with them in other similar negotiations.

You as a buyer and your offer to purchase need to be seen as the solution to the seller’s situation in price, terms, and reliability to close.  Working with an experienced agent with seasoned negotiation skills is key to your success in buying a home in a competitive environment.   Download our Buyers Guide.

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Mortgage rates, which have risen more than half a percent over the last five weeks, fell this week amid fears about the sturdiness of the nation’s banking industry. Silicon Valley Bank and two others that primarily support the technology industry shuttered operations, sending shock waves through the U.S. economy.

The 30-year fixed-rate mortgage decreased to 6.6% this week, Freddie Mac reports. That means most Americans can afford to buy a median-priced home and spend less than 25% of their gross income on their monthly mortgage payment—a gauge for measuring affordability—says Nadia Evangelou, senior economist and director of real estate research at the National Association of REALTORS®.

“Rates may decrease even further in the coming weeks, depending on reactions in the financial market and the outcome of the Fed’s meeting next week,” Evangelou adds. The Federal Reserve meets next week to decide the trajectory of its short-term benchmark interest rate and whether to continue or pull back on aggressive hikes.

Mortgage rates largely follow the course of 10-year Treasury yields, which have been falling ever since the announcement of the closures of Silicon Valley Bank, Signature Bank and Silvergate Capital.

“Turbulence in the financial markets is putting significant downward pressure on rates, which should benefit borrowers in the short-term,” says Sam Khater, Freddie Mac’s chief economist. “During times of high mortgage rate volatility, home buyers would greatly benefit from shopping for additional rate quotes.”

Freddie Mac’s research shows that home buyers could potentially save $600 to $1,200 annually by taking the extra time to shop and collect quotes from multiple lenders.

Freddie Mac reports the following national averages with mortgage rates for the week ending March 16:

30-year fixed-rate mortgages: averaged 6.6%, dropping from last week’s 6.73% average. Last year at this time, 30-year rates averaged 4.16%.
15-year fixed-rate mortgages: averaged 5.9%, dropping from last week’s 5.95% average. A year ago, 15-year rates averaged 3.39%.

by Melissa Tracey
Melissa Dittmann Tracey is a contributing editor for REALTOR® Magazine, editor of the Styled, Staged & Sold blog, and produces a segment called “Hot or Not?(link is external)” in home design that airs on NAR’s Real Estate Today radio show. Follow Melissa on Instagram and Twitter at @housingmuse.

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The housing market in 2021 and part of 2022 was anything but normal.  Mortgage rates were at all time lows and may never reach those levels again.  Double-digit appreciation drove prices to new heights.  Low inventories fueled by high buyer demand made multiple offers a normal expectation.

As we look at the market snapshots provided by MLS in the various markets across the U.S., it appears that things may be returning to normal, but not necessarily in all areas.  While there are more homes on the market now than a year ago, there are less sales due primarily to the doubling of mortgage rates in 2022.

Time on the market is lengthening but that can be explained by the removal of approximately 15 million homebuyers who now have affordability issues.  When the market shifted, sellers expectations for what they thought their home is worth are not keeping pace with current conditions.

Some sellers who didn’t put their home on the market in 2021 and 2022 for whatever reason, remember the peak of the prices they could have sold their home for and now that they are ready, instead of looking at today’s prices, still expect to get the higher value.

Every experienced agent knows that all real estate is local and while you can look at trends on a national basis, it takes a knowledgeable professional to assess the local market, even on a neighborhood basis, to determine what a property will reasonably sell for currently.

A seller who has owned their home for several years is going to realize a good profit and return on their investment.  If they are ready to sell in today’s market, that should be their focus and not on what might have been, had they sold at the recent high.

There is no way to predict when prices will achieve their high whether it is in stocks, bonds, commodities, or housing prices.  It is only after it has hit the pinnacle and started retreating, that It can be identified.

Don’t be concerned about the market you missed regardless of whether you are a buyer or a seller.  When real estate is viewed as a long-term investment, time takes care of things that can be incredibly stressful in the short term.

The average 30-year fixed-rate mortgage for the last 50 years is 7.76% according to the Freddie Mac PMMS survey.  The current 6.60% is considerably below that benchmark and it appears to be trending lower.  The current rate is what today’s buyer must pay to borrow.

Home prices have experienced 7.16% appreciation for the last fifty-five years according to the Federal Reserve Economic Data of the St. Louis Fed.  Compared to the average inflation rate of 4.3% for the same period, homes provide a hedge against inflation and a significant contribution to personal net worth.

If you’re in the market to buy or sell, contact your real estate professional to find out what your market is doing and what options you have available.

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Time.com

Mortgage rates are rising, and the housing market appears to be softening nationwide. But in many U.S. markets, would-be buyers are facing a big problem: there’s just nothing to buy. Housing inventory—the number of homes on the market—has been falling since the rebound from the Great Recession as investors snapped up homes and as more older Americans decided to age in place.

Some housing analysts predicted that inventory would start to climb as builders scrambled to finish more new homes. But in markets where there’s not a lot of new construction, including Hartford, Conn. and Buffalo, N.Y., inventory is hovering near historic lows, according to data crunched by Redfin and provided to TIME.

“I don’t think I’ve ever seen it this bad,” says Becky Koladis, who has been a real estate agent in Hartford for 23 years. “There’s just not a lot to choose from.”

In December, Hartford had just 1.4 months of housing supply, meaning it would take just 1.4 months to sell all the homes on the market at the current pace of demand. Hartford has had less than two months of supply since mid-2021, according to the Redfin numbers; in February 2019, by contrast, it had 5.9 months’ supply. In decades past, economists would say that a balanced housing market has between four and six months of supply, “but we haven’t seen that since the bottom of the last housing market,” says Daryl Fairweather, Redfin’s chief economist.

One reason inventory is so low nationally is that many homeowners were able to lock in record low interest rates in 2020 and 2021. Mortgage rates have skyrocketed since then—the rate for a 30-year fixed mortgage reached 6.7% on March 9, nearly double that of a year ago, according to Freddie Mac. That means that homeowners who bought or refinanced with low interest rates are reluctant to sell their homes and buy another with a mortgage with a much higher interest rate.

The low inventory makes house hunting an even more painful and emotionally charged process than usual, because buyers are finding that there just aren’t that many options. They have to choose between paying a high price for the inventory that is available, or waiting—potentially for a long time.

There are factors at play that make some markets especially brutal. In January, according to Redfin, the places out of the top 100 most-populated metro areas in the country with the lowest inventory were Rochester, N.Y. (1.2 months’ supply); Buffalo, N.Y. (1.4 months’); and Allentown, Penn. (1.5 months’). Rounding out the top ten were Grand Rapids, Mich.; Worcester, Mass.; Greensboro, N.C.; Hartford; Boston; and Montgomery County, Penn.

Aside from Boston, these regions aren’t the ones typically mentioned in the same sentence as “housing crunch,” but there are a few reasons that these Northeastern metropolitan areas are seeing such low supply, Fairweather says.

First off, they’re seen as relatively affordable, so people who have been priced out of places like New York City are heading to smaller cities to be able to own a house. Koladis, the Hartford real estate agent, says she’s seen a lot of buyers relocate to Hartford from New York, New Jersey, and even California.

Second, they’re places in the dense Northeast where there’s not a lot of land to build on, and so there’s not a lot of new construction happening. The U.S. has increasingly come to depend on new construction for inventory—one in three homes for sale right now is new construction, Fairweather says. In 2021, the rate was more like one in four. The current dependence on new construction means that markets where there has been a lot of building in the last few years have a lot more inventory. That includes Austin, Nashville, and Dallas, for instance, three markets that saw prices jump in the last few years because there were bidding wars on existing homes. As more inventory comes on the market, prices level off.

One other reason that there’s low inventory? The influx of investors who have bought properties, including single-family homes, to rent. Investors bought 24% of all single-family homes in 2021, up from around 15-16% each year going back to 2012, according to a Pew Stateline analysis.

“Institutional investors are…making this market more difficult,” says Peter Chabris, a real estate agent in Cincinnati, Ohio, where there is also very low inventory. Three homes went into contract in Cincinnati in February for every new one that was listed, he says.

“It’s stressful, it’s highly competitive, and it’s emotionally challenging,” he says, about buying a home right now.

It’s something buyers across the country are going to reckon with as spring—the traditional home-buying season—approaches and mortgage rates continue to rise. The Federal Reserve has steadily raised interest rates in an effort to tame inflation, and Fed Chair Jerome Powell suggested, when testifying before Congress on March 8, that the Fed would likely need to continue to bring interest rates higher than originally anticipated.

Winifred Jones has been going through the emotional roller coaster that is trying to buy a home for six years. She wants a multifamily property in Hartford, Conn., so that her adult children can live with her but also have their own space. Every year, she says, there’s been more and more competition, and more investors coming in and outbidding her with cash. She’s so sick of getting outbid for homes and then seeing them come up for rentals a few months later that she and her realtor are thinking of trying to find homeowners who are going to sell before they officially list their properties for sale. Until then, she says, she has little optimism she’ll find something.

“There’s just nothing to bid on,” she says. “It’s either way overpriced or not worth it for the money.”

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After more than two years of steady declines, rates for 30-year mortgage loans reached a record low of 2.7% at the end of 2020, according to data from Freddie Mac. By the week ending Nov. 10, 2022, rates had climbed to 7.08%, topping 7% for the first time since 2002. Rates have trended downward in the months since then, reaching 6.32% during the week ending Feb. 16. It remains to be seen whether this trend will continue or economic forces will conspire to drive rates up again in 2023.

How High Will Mortgage Rates Go in 2023?

Not all experts believe rates will increase in 2023. Those who do point to several factors that could drive rates up, but even they predict only a slight increase. Freddie Mac, for example, predicts an annualized rate of 6.4% for 2023 without stating a specific peak rate.

Here are some factors that could increase rates in 2023.

Inflation

Inflation hit 40-year highs in 2022. Although it’s slowing, with January’s consumer price index coming in at 6.4%, its smallest 12-month increase since the period ending in October 2021, it’s still significant. Shelter was one of the categories driving rising prices, according to the Bureau of Labor Statistics.

“While inflation doesn’t directly affect mortgage rates, it can indirectly cause mortgage rates to increase,” Amy Shunick, corporate financial controller at Bennett, told Rocket Mortgage. “Inflation is the devaluation of the dollar, which means that the purchasing power of your dollar decreases significantly as inflation increases. As inflation increases, so does the price of everything, including mortgage rates.”

Federal Funds Rate

The federal funds rate is the interest rate banks use to loan each other money. When the federal funds rate increases, banks pay more to borrow, and they pass along some of those costs to consumers by raising mortgage rates.

The Federal Reserve uses federal funds rate increases to tame inflation by discouraging consumers from spending and borrowing, which slows the economy and brings down prices. The rate increased seven times in 2022. That resulted in a total increase of 425 basis points, or 4.25%, between March 17, when the rate stood at 0.25% to 0.50%, and Dec. 15, when it stood at 4.25% to 4.50%. The funds rate increased by another 25 basis points, to 4.50% to 4.75%, in February of this year.

Goldman Sachs expects three additional 0.25% rate hikes this year. “In light of the stronger growth and firmer inflation news, we are adding a 25bp (basis points) rate hike in June to our Fed forecast, for a peak funds rate of 5.25%-5.5%,” economists led by Jan Hatzius, chief economist and head of the Global Investment Research Division at Goldman Sachs, said in a Feb. 16 note reported by Reuters.

Realtor.com economist Jiayi Xu fold Forbes Advisor that continued restrictive money policy could keep rates in the range of 6% to 7% in the short term.
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While these ongoing federal funds rate hikes could keep mortgage rates where they are now or push them even higher in the short term, they set the stage for lower rates in the long term by reducing inflation.

Are Mortgage Rates Expected To Drop Soon?

Mortgage rates could see a meaningful drop beginning as soon as this summer.

If the Fed is successful in reducing inflation to a level closer to its 2% goal by midyear, rates could begin to fall in the second half of 2023. A recession, which many experts think is likely this year, could also prompt the Fed to reduce the federal funds rate — in this case, to rev up the economy by encouraging consumers to spend and borrow.

In its forecast commentary released in December 2022, the Mortgage Bankers Association predicted that the U.S. would be in a recession in the first half of 2023. While it expects the Fed to continue increasing rates to tame inflation, it believes that long-term rates have already peaked. “We expect that 30-year mortgage rates will end 2023 at 5.2%,” the organization noted in its forecast commentary.

Nadia Evangelou, senior economist and director of forecasting at the National Association of Realtors, made a similar prediction, forecasting rates below 6%, and with less volatility, this year. “Although rates remain more than double a year ago, they will likely stabilize as inflation will continue to slow down in the coming months,” Evangelou told Realtor Magazine.
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Is This a Good Time To Lock In a Mortgage Rate?

Mortgage rates have trended downward over the last few months, but they haven’t moved in a straight line. That makes for a tough decision considering that lock-in periods can last 90 days. On the one hand, locking in now protects you from rate increases. On the other, you could pay more than you need to in the event that mortgage rates go down before you close on your loan.

Remember that the interest rate isn’t the only thing that impacts the cost of buying a home. Lower rates mean you pay less interest, but they also drive up demand for homes, which increases home prices. A sound strategy for many buyers, especially the more budget-conscious, is to lock in only after you’ve had an offer accepted on a home. That way, you make a purchase decision based on the big picture in terms of affordability and simply set it in stone by locking the rate.

Should I Refinance My Mortgage?

Whether it makes sense to refinance now depends on your circumstances. Freddie Mac recommends considering refinancing if it will result in one of the following:

Reducing your interest rate
Shortening the term of your loan
Locking in an adjustable-rate loan that’s about to adjust upward

Consider potential consequences of refinancing before you make the move. For example, refinancing into a loan with a lower rate can actually cost you money if you trade a loan you’ve been paying down for years for a new 30-year mortgage. A shorter-term loan generally has lower rates than a 30-year loan, but the higher principal payments could divert money from other financial priorities, such as paying down high-interest debt.

With any type of refinance, lender fees and closing costs chip away at any savings you stand to gain — even if the loan is advertised as having no fees or closing costs.

Lenders have two ways to offer no-fee/no-closing-cost loans. “One way is by charging you a higher interest rate to cover the cost of making the loan. The other way is by adding the closing costs to your loan amount,” according to the Consumer Financial Protection Bureau. “Both methods involve no cash to close the loan but result in a higher monthly payment.”

How Do Mortgage Rates Affect Home Prices?

Record home prices in the last couple of years were the result of several factors, including record-low mortgage rates, a limited supply of homes for sale, an increase in first-time buyers and migration from expensive cities to areas where homes were already in short supply, according to Freddie Mac. What these factors have in common is their effect on demand for homes.

Low rates like consumers saw in 2020 and 2021 make it easier for buyers to purchase, which increases demand and drives prices up. Higher rates make it harder for consumers to buy, so demand drops — and as demand drops, so do home prices.

“We can see definite signs of a January uptick in purchase lending on lower rates and somewhat lower home prices,” Ben Graboske, president of Black Knight Data and Analytics, told CNBC. “But affordability still has a stranglehold on much of the market.”

Final Thoughts

A volatile economy might tempt you to make decisions based on how long you expect a rate to last — or what you anticipate the next move to be. Resist the urge. Trying to time the market is rarely a good strategy, whether you’re investing in a home or in the stock market. Instead, set a budget based on what you can afford when you’re ready to buy. Or, in the case of a refinance, run the numbers through a refinance calculator to get an accurate picture of costs vs. savings, and base your decision on that. In either case, you’ll eliminate the uncertainty around the already-stressful process of buying or refinancing a home.

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CNBC – 01/05/2023

After home financing costs nearly doubled in 2022, some relief is in sight for potential homebuyers in 2023.

The interest rate for a 30-year fixed-rate mortgage in the U.S. is expected to drop to 5.25% by the end of this year, according to a forecast by the financial services website Bankrate. That’s 1.49 percentage points lower than the current rate, and nearly two percentage points lower than 2022′s peak rate of 7.12%.
A slowing economy could lead to lower mortgage rates

The forecast reflects expectations of a slowing economy in 2023 as the Federal Reserve continues to increase its benchmark interest rate to combat high inflation.

While the Fed has made progress reducing inflation — from a year-over-year peak of 9.1% in June to 7.1% as of December — it’s still nowhere near the Fed’s target rate of 2%. For that reason, Fed officials expect rate hikes to continue in early 2023, according to Bankrate.

While rate hikes can reduce inflation by making it more expensive to borrow money, they also discourage investment. This can shrink the economy, and perhaps trigger a recession in which many people lose their jobs.

And since mortgage interest rates are largely influenced by the overall state of the economy, they typically decrease during a recession.

“With the Fed maintaining an aggressive posture and inflation still high, mortgage rates will roller coaster up and down during the first half of the year before a more substantive slide takes hold in the back half of 2023,” says Greg McBride, chief financial analyst at Bankrate, who predicts a “notable pullback” on mortgage rates as inflation trends lower.

A drop in mortgage rates would be positive news for potential homebuyers, as it will reduce their monthly homeownership costs.

However, the projected dip in mortgage rates won’t be anything like pre-pandemic lows, and a chronic undersupply of homes will keep prices high, so many potential homeowners will remain on the “sidelines” in 2023, says

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By Margaret Heidenry…Feb 17,2023

The real estate game is at a stalemate that shows no signs of budging anytime soon, with neither buyers nor sellers willing to make the first move.

Buyers have little incentive to lead the way. According to Freddie Mac, they’re battling high home prices and climbing mortgage rates, which rose to 6.32% for a 30-year fixed-rate mortgage in the week ending Feb. 16.

Meanwhile, home sellers—who, a mere year earlier, enjoyed packed open houses and bidding wars—are now battling to stand out from hordes of other sellers, as the pool of available homes soared 70% higher for the week ending Feb. 11 compared with the same period last year.

“The market’s abrupt adjustments over the last year have made it harder for all participants to determine their own boundaries, let alone figure out how to meet in the middle so that a transaction can take place,” says Realtor.com® Chief Economist Danielle Hale in her analysis of housing data for the week ending Feb.11.

But amid the backdrop of soaring inventory and still-high home prices, another data point suggests some sellers might be finally willing to change up their strategy.

“January data shows that the share of home sellers making a price reduction was more than twice as large as one year ago,” notes Hale. Indeed, 15.3% of sellers in January slashed their prices compared with 6% a year earlier.

We will analyze the latest real estate statistics and explain what it means for homebuyers and sellers in this latest installment of “How’s the Housing Market This Week?”

Why price cuts don’t necessarily mean bargains

Despite these price cuts, listing prices are still high. In January, they clocked in at a median of $400,000, and they increased by 7.9% for the week ending Feb. 11 compared with that same week a year earlier.

Plus, mortgage rates remain roughly 2.5 percentage points higher than last year.

This one-two punch of high home prices and mortgage rates has sapped buyer motivation, adding to the current real estate standstill.

“High home prices and mortgage rates have required budget contortions from buyers,” explains Hale.

Some house hunters have just given up, letting listings grow stale. For the week ending Feb. 11, homes lingered on the market 23 days longer than they did this same week a year earlier. That’s the 29th week in a row that sales have grown more sluggish.

Indeed, Hale notes the days a typical property spent on the market in 2023 compared with 2022 has “grown sharply in recent weeks.”

Meanwhile, the dearth of sellers listing new homes continued its 32-week run, with 13% fewer homeowners listing their homes for the week ending Feb. 11 compared with this week last year.

How buyers and sellers should change their strategies

So how do both buyers and sellers work together to get the market moving again?

“Both groups will need to adjust their expectations and be aware of the slower market pace,” says Hale.

Cash-strapped buyers do have an abundance of one thing in the real estate game: negotiating power. Those who seize this advantage could, rather than simply ignoring the market, leverage this dynamic to snag a lower home price to offset high mortgage rates.

Meanwhile, home sellers should size up the glut of homes on the market and, rather than price high and trim that number later, price their homes affordably right as they hit the multiple listing service—and catch a buyer’s eye from the get-go when their listing is fresh and in demand.

Hale also notes that today’s near comatose, tamped-down market isn’t necessarily a bad thing.

“This slower market pace is a return to what was normal before the [COVID-19] pandemic,” Hale says. “And buyers and sellers will need to keep this in mind when entering the housing market this spring.”

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Closing costs are the fees you pay when finalizing a real estate transaction, whether you’re refinancing a mortgage or buying a new home. These costs can amount to 2 to 5 percent of your mortgage loan. So it’s important to be financially prepared for this expense.

What are closing costs?

Closing costs include a range of charges for services related to applying for a mortgage and finalizing a real estate sale. Some of the costs are related to the property you’re trying to buy — appraising it to verify its value and searching property records to ensure a clear title — and others are related to the paperwork involved in the transaction, including attorney fees and the expense of originating and underwriting the loan.

Closing costs are paid at the closing, as the name implies, and usually require a cashier’s check (not a personal check).

Property-related fees

The closing costs associated with the property are the expenses that help verify the home’s ownership and value. This is important, because the home is the collateral for the mortgage.

• Appraisal fee – The appraisal fee covers the work a licensed professional does to determine what the home is worth. The average appraisal fee for a single-family home is $352, according to HomeAdvisor, but you’ll likely pay more for a larger home. While this is considered a “closing” cost, you typically pay this well before closing day.
• Home inspection fee – Separate from the appraisal, the home inspection fee goes to the home inspector who evaluates the home’s condition, and usually runs a few hundred dollars. While an inspection is technically optional, it’s best to have one so you’re aware of any problems with the home. (What a home inspection won’t do, however, is tell you how much those problems could cost to fix.)
• Title search – Unless you’re buying a brand-new home, your lender will have a title company search property records to ensure there aren’t any issues with the title of the home, such as a tax lien. The fee for a title search is around $300.
• Title insurance – Lenders require borrowers to obtain title insurance in case there are issues with ownership after the sale. This policy protects the lender, and the cost is usually 0.50 percent to 1 percent of the amount you’re borrowing for your mortgage. For an additional cost, you might choose to purchase your own title insurance policy, as well, to protect your financial interest in the home.
• Property taxes – Buyers are also often required to pay six months to a year’s worth of property taxes at closing. The cost of this expense will vary depending on the state where the home is located.

Mortgage-related fees

There are also closing costs associated with creating the mortgage, including fees from the lender.

• Credit report fee – The credit report fee is what your lender charges to check your credit report and score. This fee can be $25 or more per borrower.
• Origination fee – Lenders can charge a fee for creating the loan, known as an origination fee, which is generally equal to 0.5 percent to 1 percent or more of the amount you’re borrowing. This fee is essentially how lenders make money.
• Application fee – Some lenders charge a fee of several hundred dollars to process your loan application.
• Underwriting fee – This might also be called an administrative or processing fee, and it covers the cost of evaluating and verifying your financial qualifications and eligibility. This might be a flat fee, or it could be expressed as a percentage of the loan, such as 0.5 percent of the amount you’re borrowing.
• Points – To lower the interest rate on your mortgage, you might also opt to pay another charge known as mortgage points or discount points. Many lenders allow borrowers to pay points in exchange for a lower rate. While this raises your closing costs, it can make a big difference in the amount of interest you’ll pay over the life of the loan.

Additional fees

Outside of these loan- and property-related costs, you might pay additional fees at closing, such as an attorney’s fee. Most real estate lawyers charge by the hour, and rates vary.

Some cities and states impose fees on real estate transactions, too. For example, if you’re purchasing a home in Chicago, you and the seller split a transfer tax of $5.25 per $500 of the sales price: The buyer typically pays $3.75 and the seller pays $1.50.

How much are closing costs?

The total tab for your closing costs depends on three key factors:

• The price of the home
• Its location
• Whether you’re buying or refinancing

For 2021, the average closing costs for buying a single-family home were $6,905, according to real estate data firm ClosingCorp. The average closing costs for a refinance came in at $2,375.

Those costs vary widely across the country, however, partly due to tax differences. Homebuyers in Washington, D.C., for example, paid the highest average closing costs, at $29,888. Delaware and New York came in second and third, respectively, with average closing costs above $17,000. The cheapest closing costs were found in the middle of the country: Missouri ($2,061), Indiana ($2,200) and North Dakota ($2,501).

Who pays closing costs?

Most closing costs are paid by the buyer, but some are paid by the seller, such as the real estate agents’ commission. As the buyer, you might try to negotiate some of your costs into the seller’s corner, such as homeowners insurance and property tax escrow deposits, flood and hazard insurance premiums and per-diem interest. (In a seller’s market, however, you might not be successful.)

How much are closing costs for the buyer/seller?

Sellers are generally responsible for realtor commissions, title fees, homeowners association fees and property taxes. But instead of paying these expenses out of pocket, they typically get to deduct them from the home’s purchase price.

However, buyers will typically need to pay closing costs out of pocket. These include attorney fees, the appraisal fee, the home inspection fee, the credit reporting fee and the underwriting fee. Buyers are also on the hook for the title search fee and insurance, prepaid interest and the first premium payment for homeowners insurance.

How to lower your closing costs

While you can’t avoid paying all closing costs, there are some that can be negotiated, potentially saving you money. Here are a few tips:

• Look for lenders that offer discounts: Consider working with a mortgage lender that doesn’t charge an origination fee, or that’ll offer you a discount. If you’re getting your mortgage at your bank, you can also try asking for a discount or fee waiver, since you’re already a customer.
• Apply for down payment assistance: If you’re a first-time homebuyer, explore down payment assistance and grants that can help you cover closing costs.
• Use a no-closing-cost loan: Look into a no-closing-cost loan — but don’t let the name fool you. No-closing-cost loans do, indeed, still charge closing costs; they are simply rolled into the principal, so you’ll be paying them back, with interest, with your mortgage.

How to budget for closing costs

Before you start looking at homes, get preapproved for a mortgage so you understand what your closing costs could be and how much home you can afford.

Since a number of factors, such as the type of loan, type of property, type of occupancy and your credit score can determine what your closing costs might be, try to be as specific as you can with the mortgage lender, says Brett Warren, director of residential mortgage lending at Hyperion Bank in Philadelphia.

“Closing costs are often higher than most borrowers initially assume they are,” Warren says.

With that in mind, budget with the high end — 5 percent of the loan — in mind. Between paying for movers, handing over a down payment and checking off all your other expenses, the run-up to closing day carries a hefty price tag, so being prepared is key.

Lastly, follow these tips for saving money on a tight budget to reduce your costs — and your stress.

Filed under: Blog by Chris Clark
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