The transfer of the title of the home from the seller to the buyer is known as closing. Typically, both the buyer and seller will pay a portion of the closing costs. These costs can be substantial. Sometimes as high as 8% of the total price of the home. Learning what fees closing costs may entail will help both buyers and sellers know what to expect.
Inspection Fees
Lenders often require a home inspection in order to determine the condition of the home. Specialized inspections, such as a termite inspection or inspection of the septic system may also be required. Whether it is required by the lender or not, all home buyers should have a home inspection completed for their own knowledge and protection.
Points
In order to reduce the interest rates, buyers may spend money on points. Each point is equal to 1%. Points can either be financed or paid upfront. When paid upfront, the amount spent can be deducted from the yearly income taxes once. Negotiating more points can be advantageous to those who plan to live in the home for an extended period of time.
Title Search Fees
This fee will only need to be paid once. Its purpose is to determine that the seller does own the property outright, and that no liens exist. Divorces, deaths, and court judgements can all cause problems. Attorneys and title companies are often paid to conduct these searches.
Title Insurance
This insurance protects the lender should the title search not be accurate. Should an incorrect title search result in a court case, title insurance would cover at least a portion of the court costs, or possible the entire court costs.
Appraisal Fees
This fees covers the cost of hiring a professional appraiser to determine the value of the property. Lenders need this information in order to determine that they are not lending more money than the value of the property. Appraisal requirements may be flexible if the property has been appraised recently.
Recording Fees
This is paid to the county clerk for the purpose of recording the change of ownership.
Application Fee
The application fee will cover the cost of assessing the credit report of the buyer(s). It is also used for loan processing. Typically, this fee is a few hundred dollars.
Loan Origination Fee
For loan evaluation, this fee may also include attorney or notary costs incurred by the lender. This fee may be as much as a few thousand dollar. In some cases, the fee amount may be reduced if a large down payment is offered to the lender.
Prepaid Interest
From the date of closing, interest will begin accruing. This is true even if the first mortgage payment is not due for quite some time. This interest payment will cover the time period between the closing date and the date the first payment is due.
Prepaid Property Insurance
Most lender will require buyers to pay their property insurance for the first year upfront.
Property Survey Fee
This survey needs to be performed in order to ensure that the property matches the legal description of the home. Property dimensions, encroachments, and more will be checked to see that they match descriptions listed in the deed.
Homeowners Association Dues
This cost will only be incurred if the home is covered by a HOA. In most cases, the amount will be prorated for the months remaining in the purchasing year. HOA fees can cover a wide variety of property maintenance.
Property Taxes
These may also be adjusted for the remaining months of the year. Property taxes will vary, and are dependent on the location of the home, as well as the value of the home.
Buyers who wish to reduce the burden of closing costs may want to request that these costs be included in the total loan amount. Some lenders are willing to cover these costs if the buyer agrees to a higher interest rate. Closing at the end of the month will help eliminate high prepaid interest amounts. It may also be helpful to at least request that the seller help pay some of these costs. Sellers who are ready to sell may be willing to pick up some of the cost in order to complete the sale.
