What Are Closing Costs?
You've found the perfect home, the seller has accepted your offer, your loan has been approved and you're eager to move into your new home. But before you get the key, there's one more step -- the closing.
Also called the settlement, the closing is the process of passing ownership of property from seller to buyer. And it can be bewildering. As a buyer, you will sign what seems like endless piles of documents and will have to present the remaining funds to secure the deal (down payment, closing costs, etc.). It's the fees associated with the closing that many times remains a mystery to many buyers who may simply hand over thousands of dollars without really knowing what they are paying for.
As a responsible buyer, you should be familiar with these costs that are both mortgage-related and government imposed. Although many of the fees may vary by locality, here are some common fees:
Appraisal Fee: This fee pays for the appraisal of the property. You may already have paid this fee at the beginning of your loan application process.
Underwriting/Lender Fee: This fee covers the end lenders cost to approve the mortgage and get your loan to the closing table.
Credit Report Fee: This fee covers the cost of the credit report requested by the lender. This too may already have been paid when you applied for your loan.
Loan Origination Fee: This fee covers the lender's loan-processing costs. This fee can be paid by the borrower or by the lender.
Loan Discount: You will pay this one-time charge if you have chosen to pay points to lower your interest rate. Each point you purchase equals one percent of the total loan.
Title Insurance Fees: These fees generally include costs for the title search, title examination, title insurance, document preparation and other miscellaneous title fees.
PMI Premium: If you buy a home with a low down payment, a lender usually requires that you pay a fee for mortgage insurance. This fee protects the lender against loss due to foreclosure.
Prepaid Interest Fee: This fee covers the interest payment from the date you purchases the home to the date of your first mortgage payment. Generally, if you buy a home early in the month, the prepaid interest fee will be substantially higher than if you buy it towards the end of the month.
Escrow Accounts: The escrow reserve is an account that holds funds for future annual property taxes and home insurance. The amount of property taxes and insurance that the lender holds in reserve will depend on the closing date compared to the due dates of the installments. Ask your lender for a more comprehensive breakdown.
Recording Fees and transfer taxes: This expense is charged by most states for recording the purchase documents and transferring ownership of the property.
When you are ready to begin the process of searcing for your next home, please contact us to learn about closing costs in more detail and to discuss which fees, and how much you will be expected to pay during the closing of you prospective home. Keep in mind that you can negotiate these costs with the seller during the offering stage. In some instances, the seller might even agree to pay all of the settlement costs.