"With the recent spike in interest rates and the unrealistic high closing costs, I feel like walking away from a potential purchase and just cutting my losses with the deposit. Why are closing costs so high?"
There is a difference between closing costs and pre-paid fees. You have industry standard fees related to costs of buying a home (the 3rd party Loan, Escrow and Title Insurance fees); however, sometimes the larger costs are pre-paid fees which your lender requires you pay upfront at closing: 1) Pro-rata interest for the first month of the loan, 2) One year pre-paid homeowners insurance and 3) if you are going to escrow your property tax and/or mortgage insurance you will also probably have to pay between 3-6 monthsâ€™ worth for both. These prepaid costs will lighten your wallet.
â€œId much rather lose my deposit then sign high cost loan.â€
Have you removed all of your contingencies? I hope not, this would be the only way you might lose your deposit money.
A high-cost loan is quite different than â€œhigh escrow costsâ€. Unless you have decided to be a renter for the rest of your life, I would sit down with your Agent, Lender and/or Escrow Officer to understand all of the costs on your Estimated HUD-1. This may not make you feel any better about the amount you are paying, but at the very least you will hopefully understand where your $$ are going and why.
â€œMy recent offer got accepted but the house did not appraise and the seller is refusing to come down on the price. This means I have to pay out of my pocket the difference and the house still needs lots of work to renovate(40k). As a first time home buyer, I feel that should just save my money and continue renting since it seems cheaper.â€
Mission San Jose is a highly sought after location and Sellers are well aware of this fact. The frustrations you have as a Buyer right now will become a faint memory when it comes time to sell and you are able to be in the driverâ€™s seat. If you and your family like the home you have a difficult decision to make. If you want to be a MSJ homeowner and you walk away from this opportunity you may lose more than just your deposit; Iâ€™m of the opinion mortgage rates will likely be in the high 5â€™s/ low 6â€™s by the end of September/October (brought on by the reduction of the Fedâ€™s Mortgage Backed Securities buying).
For example, letâ€™s say you can finance at 4.75%. For each $100K of loan amount you are paying ~ $522. Letâ€™s say you pass on this deal and rates do go up, say by .75 to 5.5%, which would increase your payment to ~$568, $46 more per month of ownership. Assuming a $700K loan amount, over the course of your first five years of ownership you would have paid an extra $19,320 ($46 x 12 mos x 7 x 5 years) -- close to 50% of your remodel budget.
â€œShould I just walk away if the seller refuses to go down to the appraised price? And keep in mind, the appraised price is still above the listed price so they are still ahead.â€
Your call, but review the pros and cons carefully. The listing price is normally a marketing tool; itâ€™s not necessarily what the Seller is actually hoping a Buyer will offer.