You are now in process of buying your new home and the next item you must face is understanding closing costs. All sales transactions have closing costs. Understanding closing costs is very important if you wish to successfully close on your purchase. Closing cost may include a host of fees and expenses. Unfortunately these are mandatory for the sale to be completed. If you have a good real estate agent, they will carefully check your closing costs a few days before the closing for accuracy. If there are any errors they can be corrected at this time. It is pertinent to make sure you are being billed correctly. Closing attorney’s usually provide a settlement statement a few days before the closing. Once received, you should contact your agent to help guide you for understanding the details. Making time for this review will make your closing more smoothly executed.
One of the items you will see is property taxes. Property tax costs usually are split between the buyer and the seller. These fees cannot be negotiated or changed. Depending on the month you close, you will pay your share of the taxes for the year. If you are using a loan to pay a portion of your purchase, taxes may be deposited in your escrow account. Some lender’s can require up to 3 months of tax escrow prior to your first mortgage payment.
With a loan also comes interest fees monthly included in your payment. Most lenders will add the interest based on the date you close up to the date of your first due payment upfront. This amount is what allows your first payment to be postponed in most cases to the next month instead of at closing. This item is not a fee that can be negotiated.
Upon closing you must pay in full your first year’s insurance coverage on your home. Most lender’s require that insurance is in place at the time of closing. You will need to select an insurance provider of your choice for a quote. Once selected get with your realtor to forward the bill to the lender and closing attorney. You will usually pay up to 3 months of insurance premium fees to be placed in your escrow account. These costs are not negotiable.
Your lender will have expenses to pay their processors and the cost of documents and so forth to process your loan. You will see a fee charged in your closing expenses that reflects the amount you pay for these services. Things that are related to this fee is, origination fee, underwriting fee, document fees, and credit examination fee. Some portions of these fees may be negotiated with your lender but should be discussed at the time of selecting your lender.
Title insurance is another fee you will see on your settlement statement. Most lender’s require this policy to ensure the title is covered should any discrepancies occur. However, keep in mind this policy lists the lender as the beneficiary. Ask your agent to explain the importance of considering an individual title insurance policy. The fee on this item is not negotiable.
You will also see an appraisal fee if you did not pay it in advance to your lender. This is a fee to evaluate the property you are purchasing to ensure that the lender’s lien can be covered if you default. The lender is seeking a value on the property that is at least the amount of the purchase price. If under the amount the lender will indicate to you your options if you wish to proceed with the purchase. In most cases you will need to get your real estate agent to renegotiate the terms of you purchase agreement.
The attorney also has fees that will be applied for their services. Included in these fees will be the cost of a title search. This is done to make sure the title is free and clear legally for you to safely purchase it. The fees also will reflect the attorney’s charges for funds transfers for various items that must be paid.
A buyer, especially a first time buyer, should retain a realtor to work for them to protect their interests. There of course is a fee that is charged for this service. It will appear on the settlement statement as a broker’s fee. For the buyer, most times the seller has already agreed to pay your agent’s brokerage fee IF the house is listed with a broker. However, often times in the case of buying directly from a homeowner the fee isn’t paid. Usually if you select a real estate agent they will locate properties that are listed that usually at minimum have agreed to pay the buyer’s agent fee. The agent will have to negotiate the fee payment with a for sale by owner property.
On occasion, you may see points charged by the lender for you the buyer that decreased your interest payments. This fee is usually discussed with you at the time of obtaining your lending.
Occasionally, you will see fees for a survey that was completed. This is usually done in land purchases to determine the property lines and size of the acreage being purchased. Sometimes this is good to utilize if the house you are buying is located on a large plot of land. Ask your realtor to guide you on this matter.
As you can see closing costs is all the fees charged for processing your loan and some third party fees for services. Some items can be added into the loan amount while others may be paid upfront. The time to consider your closing costs is when searching for a lender. You should ask your potential lender’s to provide you with a preliminary loan estimation. This will show you most of your fees and the total monthly cost of your mortgage. With all these items, it should be clear how important understanding closing costs are. Make sure you talk to your real estate agent for details and guidance on how to be prepared for your closing. You may contact me by Clicking Here for more help with understanding closing costs.
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