Congratulations on finding your dream home! The next step is the closing process, which can be confusing. As a responsible buyer, it's crucial to understand the fees associated with closing, such as appraisal, credit report, loan origination, loan discount, title insurance, PMI premiums, prepaid interest, escrow accounts, recording fees, and transfer taxes. These fees can vary by locality, so consulting with a real estate professional in your area is essential.
You can also negotiate these costs with the seller during the offering stage. To ensure a smooth home buying process, seek guidance from a qualified real estate agent who can assist you in making informed decisions about the closing process and any associated fees.
As a responsible buyer, you should be familiar with these costs that are both mortgage-related and governmentimposed. Although many of the fees may vary by locality, here are some common fees:
This fee pays for the appraisal of the property. You may already have paid this fee at the beginning of your loan application process.
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.
This fee covers the lender's loan-processing costs. The fee is typically one percent of the total mortgage.
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.
These fees generally include costs for the title search, title examination, title insurance, document preparation and other miscellaneous title fees.
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.
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.
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 six months have passed, eight months of taxes will be collected.)
This expense is charged by most states for recording the purchase documents and transferring ownership of the property.
Ensure you seek guidance from a local real estate professional to determine the specific fees and their respective amounts that you will be required to pay during the closing process of your potential home. Remember that you have the opportunity to negotiate these costs with the seller when making an offer. In certain cases, the seller may agree to cover the entirety of the settlement expenses.