Typical Closing Costs Paid by Home Buyers
Closing costs are the expenses associated with
buying real estate. You'll pay a large chunk of the
closing costs the day the transaction is complete,
when the property becomes yours, but some closing
costs are nearly always paid before that day.
Even though your down payment might be a high
percentage of the funds you bring to closing it is
not regarded as a closing cost. It's a payment that
increases the equity in your home, not an expense.
The Real Estate Procedures Closing Act, RESPA,
requires lenders and mortgage brokers to give you a
Good Faith Estimate of the loan-related expenses
that are due at closing, but the amounts are just
that--estimates, not guarantees of your actual
closing costs.
Closing Costs to Obtain a Loan
Loan origination can be called a loan
origination fee or a point and covers the lender's
costs of processing the loan.
The fee is usually a percentage of the loan amount
and the percentage varies among lenders.
A loan discount is called point or discount point
and refers to a one-time charge imposed by the
lender or broker to lower the interest rate. Each
point costs 1 percent of the loan amount and
typically lowers the rate by 0.125%. Do a few
calculations before you buy discount points to
determine if the purchase will really save you
money.
The appraisal fee pays for the appraisal report the
bank requires to evaluate the property's worth
before lending you the money to buy it.
A credit report fee pays for the reports that banks
use to study your credit history. Credit reports and
scores are one of the items that help the bank
determine if you are a good credit risk, how much
they can lend you, and what interest rate they
should offer.
A lender's inspection fee is often charged when you
build or buy home that's under construction. It pays
for routine inspections the lender requires to
monitor construction and release funds as work
progresses.
A mortgage insurance application fee might be
charged if your down payment isn't enough percentage
to allow the loan to be approved without private
mortgage insurance, called PMI for short.
You might pay an assumption fee if you assume, or
take over, the responsibilities of paying the
seller's existing mortgage.
Closing Costs Paid in Advance
Closing costs paid in advance cover expenses
that occur after closing:
Prepaid interest covers the interest due on the loan
from your day of closing until your first monthly
payment.
If you are obtaining PMI the lender will require you
to pay some portion of the premium at closing.
You'll probably pay for a year of hazard insurance
at or before closing to protect you and the lender
against loss from fire, windstorm, and some other
hazards. If your new home is at risk of flooding the
lender will require that you purchase flood
insurance. Your lender might require other types of
insurance for homes in your area.
Funding Your Escrow Accounts
Most people start funding their escrow, or
impound, accounts at closing by paying multiple
monthly payments for each bill the lender pays for
them annually, such as property taxes and hazard
insurance. Lenders jump start the accounts at
closing to make sure there's plenty of money on hand
when the bills arrive next year.
RESPA puts limits on the amounts your lender can
require you to pay in advance.
Miscellaneous Closing Costs
Your home inspection is a closing cost, even if
you pay it before your settlement date. So are radon
tests, pest inspections and other specialized
inspections you perform at the property.
Payments for home warranties are another common
closing cost.
Arrangements for closings vary. In some states you
will pay an attorney to do a title search, apply for
title insurance for both you and your lender and
perform the actual closing. In other states the
title work is handled by specialty companies and
closings take place in varied locations.
Your closing agent might charge you a notary fee to
have loan documents notarized. You'll pay a
recording fee to have the new deed and other
documents recorded in public records. You might also
pay an overnight fee to send documents to the lender
and a wire transfer fee for incoming or outgoing
funds.
You might pay a one-time impact fee, sometimes
called a transfer fee, if you are buying a home or
condo in a housing development. You'll also pay your
share of the development's annual association fees.
You probably won't pay all of the closing costs I've
mentioned, but there might be additional fees that
you will need to plan for, so ask your lender, your
real estate agent and your closing agent for an
estimate of expenses you can expect to pay when you
buy real estate in your area.
Article Source: about.com
Author: Janet Wickel
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