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The
ABC’s of Closing Costs |
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You’ve found your
dream 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 a
sizeable check for the down payment and various
closing costs. 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.
·
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. The fee is
typically one percent of the total mortgage.
·
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. Once
a new owner has 20 percent equity in their home,
however, he or she can normally apply to
eliminate this insurance.
·
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: In locations where escrow
accounts are common, a mortgage lender will
usually start an account that holds funds for
future annual property taxes and home insurance.
At least one year advance plus two months worth
of homeowner’s insurance premium will be
collected. In addition, taxes equal
approximately to two months in excess of the
number of months that have elapsed in the year
are paid at closing. (If 6 months have passed, 8
months of taxes will be collected.)
·
Recording Fees and transfer taxes: This expense
is charged by most states for recording the
purchase documents and transferring ownership of
the property.
Make sure you consult a real estate professional
in your area to find out 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. |
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