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Closing Costs

Overview

Buying a home involves more money out-of-pocket than just the down payment as buyers need to pay for the services rendered. These are known as the closing costs, which are used for paying the items such as recording fees, title policies, courier charges, inspections, fees that a lender charges and reserves to set up an escrow account.

Closing costs are an important category of expenses to keep in mind when buying a home. They are funds, in addition to a loan down payment that is paid at settlement. These costs may vary among states, but the cash transactions may have fewer costs than financed purchases.

The closing costs include all additional expenses beyond the purchase price of the home. These are costs outside your down payment amount and may include origination fees, escrow costs, property taxes, title insurance, appraisal fees, and several other possible areas depending on the type of loan you receive.

Here’s what you need to know about closing costs:

What Are Closing Costs & Who Pays Them?

Although many of the costs related to financing, others are independent of the mortgage loan. Normally, some charges are related to either the buyer or the seller, but anything is negotiable. In a buyer’s market, when the properties are slow to sell, anxious sellers frequently agree to pay part of the buyer’s closing costs. This is less likely to happen in a seller’s market when the properties sell quickly.

Some of the costs are clearly the responsibility of the seller. For instance, the seller usually pays the total real estate commission- this is a closing cost to the seller. The amount is deducted from the proceeds of the sale and the closing agent writes a check to the listing and selling real estate companies. Similarly, the seller pays for his own real estate attorney, in case he has retained one.

If the seller has not paid the annual property taxes yet, then the seller credits the buyer for the number of days the seller owned the home that year. This credit reduces the amount of money the buyer requires at closing. Usually, the buyer pays for the mortgage fees such as origination points, application, discount points, credit report, mortgage insurance, and mortgage broker fee. Lenders normally don’t charge all of these fees for every transaction. An origination point compensates the lender or the mortgage broker for their work while a discount point lowers the interest rate.

How Are Closing Costs Calculated?

The closing costs make up about two to five percent of the total purchase price of the home. So, if your home costs $200,000 then the closing costs will range from $4,000 to $10,000. But the closing costs will vary between states and lenders and they can also change based on the types of fees.

The following are some fee types that may be included in the closing costs:

  • Application fee
  • Appraisal fee
  • Credit report
  • Discount points
  • Escrow fee
  • Escrow deposit for taxes and insurance
  • Home inspection fee
  • Homeowners insurance
  • Origination or underwriting fees
  • Prepaid interest
  • Recording Fees
  • Title insurance

Note that you won’t be necessarily faced with all these fees. Within three days of submitting your loan, you’ll receive an estimate of your final closing costs from your lender. No later than three days before closing, you’ll receive a closing disclosure that will list the exact closing costs and when you are expected to provide them.

All in All

Experts at Primary Residential Mortgage in Fort Myers are here to help you know all the basics about the home loan closing costs.

 

*PRMI NMLS 3094. PRMI is an Equal Housing Lender. Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. Programs, rates, terms, and conditions are subject to change and are subject to borrower(s) qualification. This is not a commitment to lend. Florida Office of Financial Regulation MLD646. Opinions expressed are solely my own and do not express the views of my employer.

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