Buying a home means coming up with the down payment as well covering closing costs. Such mortgage settlement costs can be alarming to homebuyers, especially when they didn't know these fees needed to be paid upfront. Learn what these costs involve so there are no surprises at the closing table.
Closing costs — these two little words don't sound too terrible so how bad could they be? They can actually be pretty bad for unsuspecting homebuyers. These fees can conjure up a vision of the small child who has just enough change to purchase candy but the clerk tells him he needs more money. Mortgage settlement costs are the fees incurred when buying a home. Some might say the people who helped put the home deal together want a sliver of the pie and those pieces get doled out at the closing table. When it comes to closing on a home, the happy homebuyer is the prepared homebuyer.
While what is included varies, closing costs may cover the following:
- Application. Lenders charge this fee to check credit and begin processing the loan.
- Appraisal. Lenders hire an appraiser to ensure the value of the property is at least the amount they will be loaning.
- Escrow. Often, lenders want some cash stashed away to pay for unexpected property expenses.
- Flood determination. Some lenders want to find out if the property is located in a flood zone so they can be covered: they will in turn make the buyer purchase flood insurance.
- Home inspection. Some lenders may require a structural, termite or some other type of property inspection.
- Homeowner's insurance. Buying this hazard insurance protects against damage.
- Loan origination. This broad term covers anything from legal costs to document preparation fees. - Points. Purchase these at closing to lower the interest rate.
- Prepaid interest. The amount of interest accrued between the date of closing and the date house payments start.
- Private mortgage insurance. If homeowners do not have 20 percent down, some lenders will require them to purchase PMI or private mortgage insurance.
- Recording. These fees are charged by city and or county government offices to record property sales.
- Survey. The cost for surveys varies widely based on how in-depth the lender needs the surveyor to go and for what purpose.
- Taxes. Property taxes differ greatly depending on the city and state.
- Title insurance. Just in case the title search did not turn up everything and problems ensued because of insufficient findings, this policy covers the lender.
- Title search. The lender needs proof there are no outstanding liens, judgments, probate issues or similar issues which impact who legally owns the property.
Typical closing costs really depend upon factors like location and lenders but in general, the fees will be somewhere in the neighborhood of three to eight percent of the loan. That means if a homebuyer is purchasing a house for $250,000, he can expect to pay anywhere from $7,500 to $20,000 in closing costs. These figures may seem like large chunks of change, so an option may be to seek lower closing costs. When buying a home, ask for a written Good Faith Estimate (GFE), which is an itemized list stating how much closing costs buyers can expect to pay. While this figure may fluctuate slightly, it gives homebuyers a general ballpark figure so they can prepare accordingly.
Who wants lower closing costs when they can have no closing costs? With so many costs associated with closing on a home, it would be nice if someone would step in and pay the fees on your behalf. In a buyers' market, it is not unusual for sellers to pick up the complete tab for closing costs. Don't wait too long to cash in on this great opportunity because it won't last. When the housing market starts shifting back to a sellers' market, sellers won't need to offer concessions. Lenders themselves can lower mortgage settlement costs also. Shop rates, compare programs and speak directly with lenders to see what part of closing costs are negotiable.
Mortgage settlement costs don't have to be a frightful shock when going to sign the closing papers. At Simon Houses, our knowledgeable team of mortgage loan officers knows what it takes to put a first time homebuyer in a new home. These experts are creative in working with numbers and make sure no hidden fees mysteriously appear. Homebuyers can walk into their closings without a ton of cash but with a sigh of relief knowing they've been helped by professionals. Know what you're up against, lower closing costs, set aside extra money to pay for these fees and all will work out fine. Buying a home can end just the way it started, filled with a promising future.