You’ve finally found your dream home and you’re ready to make it final. There are some things about closing costs you should know. In some cases, the seller will pay some or all of the closing costs, but you should be prepared to pay them. Here’s a list of possible fees that you could see as part of your closing costs. Keep in mind that this is not an exhaustive list. There may be others that are not listed here, and some of these may not be included.
Service Fees in Closing Costs
Any mortgage broker, real estate agent, or lending agency will charge a fee for their services. This includes the fee for negotiating the loan as well as lending it. It may be a flat fee plus a percentage of the sale price, depending on the broker. You may be paying one or two parties. These services include processing your loan application, underwriting and funding the loan, although these fees may be specified separately on the title loan. Underwriting includes checking your credit history, annual income, and likelihood of being able to pay off the loan.
If your attorney is involved in the purchase of your home, s/he will often charge a separate fee for the preparation and recording of all documents. Your lending institution will often have its own attorney as will the broker and seller. All parties are represented at the closing, which is where you sign the final paperwork to purchase the home.
A notary fee is charged for the cost of having a person who is licensed as a notary public swear to the fact that the persons named in the documents did, in fact, sign them. Every bank, credit union, and real estate office has at least one employee who is a notary public. The notary may charge per approval stamp or per set of documents. Typically, a standard fee is $15-$25 per stamp.
Title and Recording Fees
A title service fee is paid by either the seller or the buyer, depending on the terms of the contract. It is the fee paid to search the public records regarding previous sales of the property in question. Often the seller pays the majority percentage, but be sure to check out the percentage you are paying. These fees are demanded up front. If you have an attorney brokering the deal, s/he may combine the title search and attorney fees.
The government requires a fee to transfer ownership of the property on the new deed. This is known as a recording fee. Either the buyer or seller may pay these fees, depending upon your agreement.
The title insurance binder is a commitment to issue a title insurance policy at a future date. It may be for the lending institution or existing property owner and protects their investment in the property.
Taxes, Inspections, and Appraisals
The buyer pays points to the lender, which represent a percentage of the loan amount. They are used to lower your monthly interest rate on the mortgage because they are a pre-paid amount. You can choose to pay points at the closing (to get a lower interest rate) or have them paid to you (to cover some of your closing costs). If you choose not to have any points, this is a zero-point loan. Discuss these options with your broker, attorney, or financial institution to decide which is right for you. Typically, 1 point = 1% of the loan principal (the amount of the agreed-upon purchase price).
The actual value of your new home may be different than the asking price. This can be due to a quick sale (the need to sell it quickly), the condition of the property, or changing values of other properties nearby. Your real estate agent can advise you on many of these issues in advance when you look at the property. Ultimately, an appraiser holding a government license must be consulted to determine the structural safety and property value at hand. Any professional appraisals done previously are a matter of public record and can be obtained by your realtor, broker, or financial institution. However, you must still pay for a current appraisal.
Depending on the location of the property, a surveyor/flood or earthquake insurance need can be mandated by the lending institution, government regulation, or insurance company. It is a good idea to get a copy of the report for your files, as you may need this in the future. If it is in a flood or earthquake zone, your insurance carrier will advise you whether you should carry the appropriate insurance.
Homeowner’s insurance protects you against loss due to fire, windstorm, and natural hazards. Lenders often require a paid up front first year’s policy or to pay for the first year’s premium at the time of (closing) settlement. A mortgage insurance premium covers the life of the loan in advance and is also paid at the time of settlement.
Transfer tax is collected in some localities whenever property changes hands or a mortgage loan is made, can be quite large and are set by state and/or local governments. City, county and/or state tax stamps may have to be purchased as well.
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