Here is an overview of the types of closing costs you may
incur on your loan. Some are one-time fees, while others reoccur over the life of the loan. When you apply for
your loan, you will receive a Good Faith Estimate of Settlement Charges, and a booklet that will explain these costs in detail.
Loan Origination Fee:
This fee covers the lender's administrative costs in processing the loan. It is a one-time fee, often
expressed as a percentage of the loan. The origination fee is typically 1% of the loan, but remember, you can obtain a loan with no origination fee and a slightly higher interest rate.
This is a one-time fee that pays for an appraisal, which is a statement of property value viewed by the lender.
The appraisal is made by an independent fee appraiser and can cost a standard $300 to $450, or much more, depending on the home's size and location.
Often called "points", a loan discount is a one-time charge used to adjust the yield on the loan to what market conditions demand. One point is equal to 1% of the loan amount. This fee is rare when interest rates are low.
Credit Report Fee: This one-time fee covers the cost of the credit report that is run by an independent credit reporting agency and is usually about $60-$75.
Title Insurance Fee:
There are two title policies: a lender's title policy (which protects the lender against loss due
to defects on the title) and a buyer's title policy (which protects you). These are both one-time charges, but the one you usually pay as a buyer is $200.
Miscellaneous Title Charges:
The title company may charge fees for a title search, title examination, document preparation,
notary fees, recording fees, and a settlement or closing fee. These are all one-time charges and can add up to about $200.
Document Prep Fee:
There may be a separate, one-time fee that covers preparation of the final legal papers, including
the note and deed of trust. These legal documents run about $150.
Other lender fees include an underwriting fee, a flood certification fee, an amortization schedule fee, and other
miscellaneous fees that should be disclosed by your mortgage lender at loan application. These fees vary dramatically from about $450 to $900.
Depending on the time of month your loan closes, this charge may vary from a full month's interest to just
a few days' interest. If your loan closes at the beginning of the month, you will probably have to pay the maximum amount. If your loan closes at the end of the month, you will only have to pay a few days' interest.
PMI (Private Mortgage Insurance) Premium:
Depending on the amount of your down payment, you may have to pay an up-front fee
for mortgage insurance (which protects the lender against loss due to foreclosure). You may also be required to put a certain amount into a special reserve account (an impound account) held by the lender for PMI.
Beginning of the Escrow Account:
Your lender will typically have an account where your property taxes and property insurance
will be held. This account will be started with taxes approximately equal to two months in excess of the number of months that have elapsed this year. (If 6 months have passed, they will collect 8 months of taxes.) Your property insurance will be collected
one year in advance, plus two months will be kept in your escrow account.
Earnest Money Deposit:
It is important to have an understanding of the earnest money deposit, so you will not be placed in
an uncomfortable position when you purchase a property. At the time a written offer is initiated, you will be required by the seller to include a personal check, cashier's check, or cash. The amount is normally deposited (cashed) into the designated title
company's escrow account upon the offer's acceptance and will remain in escrow until the time of closing. This amount is credited to you as a partial down payment and represents your intent to purchase the property. If the offer is not accepted, this
amount is returned to you promptly. Depending on the price of the property, you should anticipate a minimum of a $1,000 earnest money deposit. Also, in the event that you do not qualify with a lender for a new loan, the earnest money is refunded to you,
provided the sellers are given written notice regarding the lender's disapproval and provided you have supplied the lender with all documentation they have requested.
When you purchase your home, both you and the lender need a preliminary title ment that will indicate exactly
what recorded liens, encumbrances and recorded easements are currently in effect on the property. The title ment will also indicate the vested owner of record and any restrictions on the use of the property. Title insurance is, for all practical purposes,
required on all property in most states and is normally a seller's expense. However, the buyer is required to furnish the lender with a lender's policy showing the lender as lien holder on that property. These charges will be incurred at the time of settlement
as a part of your closing costs. When the purchase of the property is closed, and the title company has recorded the necessary documents, the title company will then issue a title insurance policy binder to you and the lender, showing clear title to the
Reminder: For the closing, you must bring a driver's license and a cashier's check for the remainder of your down payment, made out to the title company. At the closing, you may sign the cashier's check over to the title company. If the closing does not occur, you can deposit the cashier's check back into your own account.
Okay, that's a lot to know! Now, how can you position yourself to have the best experience possible?
- Be a Pre-Approved Buyer: A pre-approved buyer always has the advantage in an offer situation. Becoming pre-approved is very easy: you complete your loan application with a credit check prior to beginning your home search process. Pre-approval means that you have actually been approved for the purchase by a lender, which gives you the edge in home purchase negotiating.
- Beat The Competition to The Best New Listings: The search process can be both fun and trying. You will notice that some homes sell very fast and others hang around for long periods of time. The best homes at the best prices sell fast. Keeping on top of this is essential. Connect with a professional Real Estate agent that knows the market and keeps you updated.
- Do The Research: Make yourself a "home value expert." Investigate the areas and price ranges for the kind of home you are looking for. Get a good idea of the price ranges these homes sell for and how long the market time is for them. Your agent is a great asset here.
- Have Your Offer Presented in Person: Your agent represents you and your best interests. To adequately do this, make sure that your home offer is presented by them directly to the seller. The personal touch will give you the edge. Your agent also might pick up critical information during this meeting.
- Prove That You Are a Serious Buyer: The best way to accomplish this is with strong earnest money. This might mean that you put 5% or more down to get the sellers attention.
- Don't Go Crazy: Even in a hot market, be cool and calculated with your decisions. A knowledgeable agent can really help you here. Your home purchase may be your single largest investment. It is important to make sure that you get the best deal possible. Overpaying now will make it harder to get your value back when you sell.
- Keep Your Offer Simple and Clean: Make sure that your contract to purchase is simple, clean and not bogged down with unnecessary contingencies, especially repairs. Keep the time frames of repairs and responses to a minimum. The cleaner your offer, the more interested the seller will become. This may help you purchase the property at the best price.
- Don't Wing It Alone: What you need most in today's complex marketplace is an experienced and professional real estate agent who represents your interests only. No matter how heated the competition or the negotiations, a professional agent will represent your best interests, keep you from paying too much and help you maximize your investment.
Are you looking for an agent to represent you and your best interests? You, the home buyer, pay nothing for a professional agent. Their fees are paid for by the seller. Click here
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