The common question I get and that my clients are ill informed about are related to closing costs. What are typical closing costs and how much do they run? Below is a breakdown of what closing costs you will encounter and what they are used for:
Non-Recurring Closing Costs Associated with the Lender
l Appraisal fee: The property being appraised is collateral for your mortgage (you’re borrowing money against the value of the property you’re borrowing money to buy) so the lender will want to verify that the property’s value is comparable to similar property based on recent sales in your area. l Credit Report l Flood certification fee: The certification verifies whether your property is in a federally designated flood zone. l Flood monitoring: Monitors remapping of flood zones. l Lender’s Inspection fee: for newly constructed property to verify that construction is complete with carpeting and flooring installed. l Loan discount: AKA points, each point equal to 1 percent of the loan amount. l Loan origination fee l Mortgage broker fee l Tax service fee: For monitoring your payment of property tax.
Other Lender Fees
l Administration fee l Appraisal review fee: Usually done on higher-valued properties. l Document preparation l Underwriting fee l Warehousing fee: The cost of a “warehouse” line of credit. l Wire transfer fee: This is the cost to transfer funds from one account to another.
Items required to be paid in advance
l Homeowner’s insurance: You are usually required to pay the entire first year’s insurance at closing. l Mortgage insurance: Some first-time homebuyer programs still require the first year’s mortgage insurance to be paid in advance. l Pre-paid interest: The interest that accumulates between closing day and the first payment due date. l Up front mortgage insurance premium l VA funding fee: This is paid to the Veterans Administration for guaranteeing your loan.
Reserves Deposited with Lender
l Homeowners insurance impounds: You will need to deposit two months’ worth of premiums into the impound account to start it up. l Mortgage insurance impounds: Usually two months’ worth of premiums. l Property tax impounds
Non-recurring closing costs
l Closing/escrow/settlement fee l
Courier fee: This is the charge for sending documents back and forth between lender and borrower. l Home inspection: This is an optional, but recommended, cost. l Home warranty l
Homeowner’s association transfer fee l Loan tie-in fee: Usually charged by the closing agent, this is for services they provide in dealing with the lender.
l Notary fees l Pest inspection l Recording fees: To record documents with county recorder. l Sub-escrow fee: The title insurance company charges this for dealing with the closing agent.
l Title insurance: You pay this to make sure you have clear title to the property.
Buying a home for the first time can be a very exciting yet scary endeavor. The more you are educated and prepared for the more excitement goes up and the fear goes down. I hope this has helped to bring that excitement back up in your future home buying journey!