Ways to reduce or finance closing / escrow Costs

New to Real Estate · Baltimore, MD · Member since 2020 · 4 posts · 1 vote

Hey BP gang, was hoping to purchase a house hack in the Baltimore area and just talked to my first lender. They informed me that the money I would owe would twice as much as I expected because I had not accounted for the escrow cost. So that reduces my ability in being able to buy a place unless there some way around this. (I expected CC to be around 11k and I got the 23k total from that lender).

I know in previous markets, the seller paying closing costs was acceptable, but in today's it is not. I read that there's maybe a grant or program out there that could assist this. Or I could possibly ask the buyer if I could incorporate them in the sale price.

Any advice? Please let me know if I could word this better - it is a little confusing.

Happy Friday,

Jack

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Russell BrazilBusiness Member

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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes

Increase the price to get a seller closing cost subsidy. This will essentially not be possible with new/multiple offer properties, so youll need to focus on properties that have been on the market awhile.

Also note in Baltimore, your escrowed funds are always going to be high due to the high taxes...no way around that.
Also keep in mind conventional loans limit closing help to 3%, VA to 4% and FHA to 6%. The only reason you would be using FHA though is if it is a multifamily, or you had bad credit. If you had good credit and were buying a single unit property, FHA wouldnt make sense.

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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
4y
Increase the price to get a seller closing cost subsidy. This will essentially not be possible with new/multiple offer properties, so youll need to focus on properties that have been on the market awhile.

Also note in Baltimore, your escrowed funds are always going to be high due to the high taxes...no way around that.
Also keep in mind conventional loans limit closing help to 3%, VA to 4% and FHA to 6%. The only reason you would be using FHA though is if it is a multifamily, or you had bad credit. If you had good credit and were buying a single unit property, FHA wouldnt make sense.
[email protected]301-893-4635 Podcast Guest on Show #192
District Invest Group546 Reviews
Website View Page
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Huong T NguyenPro Member
Member since 2019 · 93 posts · 35 votes
4y
Ask your buying agent, who gets paid 2.5% - 3% commission of the purchase price, to give you half of his/her commission, or at least 1% of the price you pay for the house.
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Stephanie P.Pro Member
Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
4y
Originally posted by @Jack Stewart:
Hey BP gang, was hoping to purchase a house hack in the Baltimore area and just talked to my first lender. They informed me that the money I would owe would twice as much as I expected because I had not accounted for the escrow cost. So that reduces my ability in being able to buy a place unless there some way around this. (I expected CC to be around 11k and I got the 23k total from that lender).

I know in previous markets, the seller paying closing costs was acceptable, but in today's it is not. I read that there's maybe a grant or program out there that could assist this. Or I could possibly ask the buyer if I could incorporate them in the sale price.

Any advice? Please let me know if I could word this better - it is a little confusing.

Happy Friday,

Jack

$23,000 seems pretty high. What's costing that much money? Are you paying origination points? Can you renegotiate the contract higher to get the seller to contribute toward closing costs? I just closed a 509K purchase in Maryland at 95% loan to value. The borrower put down $3500 EMD and only had to come to the table with the down payment $25,450 and about another $8,000 for a total of $34,000 +/-. The seller paid all the transfer taxes and doc stamps. Transfers and docs came to about $9,700.
I would do a couple things.
1. I would renegotiate the sales price to include seller contribution of up to 4% of the non-recurring closing costs. I don't know your sales price, so you do the math. Understand that ALL of this is just a math problem
2. I would speak to my lender and have him/her explain the rate range for my loan. If you're house hacking, I'm assuming you're using conventional financing or FHA if the property includes units. Either way, rates for loans in the conventional or FHA world are provided in a range. There's a "par" rate where it doesn't cost the borrower any money and they get no lender credit. It's almost never exactly par, so there's always either some lender credit or a little cost. Raise the rate up and you get lender credit to cover closing costs. Get a lower rate and you have to pay for it in points. In the case of the loan I just closed, there was a $233 lender credit. Once you know the rate range, see how high you can get the rate without blowing your debt to income ratio and how much lender credit you'll get for it instead of paying points.
That's what I'd do.
Hope that helps
Stephanie
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Long LeBusiness Member
Real Estate Agent · Chandler, AZ · Member since 2021 · 28 posts · 9 votes
4y
If the problem is reserve for escrow account, you can ask the lender if you can opt to not have an escrow account for now.
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Joe Norman
Property Manager · Baltimore, MD · Member since 2014 · 1k+ posts · 1k+ votes
4y
Originally posted by @Huong T Nguyen:
Ask your buying agent, who gets paid 2.5% - 3% commission of the purchase price, to give you half of his/her commission, or at least 1% of the price you pay for the house.

I tried the reverse of this once. I said to investor client of mine, “hey, you’re making $500 a month cashflow on this purchase, how about giving me half”? Didn’t go over well.

Kidding, of course. I respect that my investor clients are in the businesses to make money, and reciprocate. Good luck finding a high quality agent who’s respected in their local market and also willing to give up half of their income to make your “deal” work. Sheesh.

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Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
4y
Russell raises a good point-how much of those costs are due to taxes-ie something you have very little control over? Ask for a break down of the costs and see what is higher than you expected.
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