Here is an overview of the types
of closing costs you may incur on your loan. Some are one-time fees,
while others reoccur over the life of the loan. When you apply for your
loan, you will receive a Good Faith Estimate of Settlement Charges, and
a booklet that will explain these costs in detail.
Loan Origination Fee: This fee covers the lender's administrative costs
in processing the loan. It is a one-time fee, often expressed as a percentage
of the loan. The origination fee is typically 1% of the loan, but remember,
you can obtain a loan with no origination fee and a slightly higher interest
rate.
Loan Discount: Often called "points", a loan discount is a
one-time charge used to adjust the yield on the loan to what market conditions
demand. One point is equal to 1% of the loan amount. This fee is rare
when interest rates are low.
Appraisal Fee: This is a one-time fee that pays for an appraisal, which
is a statement of property value viewed by the lender. The appraisal
is made by an independent fee appraiser and can cost a standard $300
to $450, or much more, depending on the home's size and location.
Credit Report Fee: This one-time fee covers the cost of the credit report
that is run by an independent credit reporting agency and is usually
about $60-$75.
Title Insurance Fees: There are two title policies: a lender's title
policy (which protects the lender against loss due to defects on title)
and a buyer's title policy (which protects you). These are both one-time
charges.
Miscellaneous Title Charges: The title company may charge fees for a
title search, title examination, document preparation, notary fees, recording
fees, and a settlement or closing fee. These are all one-time charges
and can add up to about $200.
Document Preparation Fee: There may be a separate, one-time fee that
covers preparation of the final legal papers, including the note and
deed of trust. These legal documents run about $150.
Lender Fees: Other lender fees include an underwriting fee, a flood
certification fee, an amortization schedule fee, and other miscellaneous
fees that should be disclosed by your mortgage lender at loan application.
These fees vary dramatically from about $450 to $900
Prepaid Interest: Depending on the time of month your loan closes, this
charge may vary from a full month's interest to just a few days' interest.
If your loan closes at the beginning of the month, you will probably
have to pay the maximum amount. If your loan closes at the end of the
month, you will only have to pay a few days' interest.
PMI (Private Mortgage Insurance) Premium: Depending on the amount of
your down payment, you may have to pay an up-front fee for mortgage insurance
(which protects the lender against loss due to foreclosure). You may
also be required to put a certain amount into a special reserve account
(an impound account) held by the lender for PMI.
Beginning Of The Escrow Account: Your lender will typically have an
account where your property taxes and property insurance will be held.
This account will be started with taxes approximately equal to two months
in excess of the number of months that have elapsed this year. (If 6
months have passed, they will collect 8 months of taxes.) Your property
insurance will be collected one year in advance, plus two months will
be kept in your escrow account.
Earnest Money Deposit: It is important to have an understanding of the
earnest money deposit, so you will not be placed in an uncomfortable
position when you purchase a property. At the time a written offer is
initiated, you will be required by the seller to include a personal check,
cashier's check, or cash. The amount is normally deposited (cashed) into
the designated title company's escrow account upon the offer's acceptance,
and will remain in escrow until the time of closing. This amount is credited
to you as a partial down payment and represents your intent to purchase
the property. If the offer is not accepted, this amount is returned to
you promptly. Depending on the price of the property, you should anticipate
a minimum of a $1,000 earnest money deposit. Also, in the event that
you do not qualify with a lender for a new loan, the earnest money is
refunded to you, provided the sellers are given written notice regarding
the lender's disapproval, and provided you have supplied the lender with
all documentation they have requested.
Title Insurance: When you purchase your home, both you and the lender
need a preliminary title commitment that will indicate exactly what recorded
liens, encumbrances and recorded easements are currently in effect on
the property. The title commitment will also indicate the vested owner
of record and any restrictions on the use of the property. Title insurance
is, for all practical purposes, required on all property in most states
and is normally a seller's expense. However, the buyer is required to
furnish the lender with a lender's policy showing the lender as lien
holder on that property. These charges will be incurred at the time of
settlement as a part of your closing costs. When the purchase of the
property is closed, and the title company has recorded the necessary
documents, the title company will then issue a title insurance policy
binder to you and the lender, showing clear title to the property. Closing: Different states have different procedures.
Some require that real estate transactions have attorneys. In Florida
we have the option of using attorneys or licensed title agents. Most
closings take place at a title company or one of the real estate offices
with the title agent leading the process. Florida is also different than
some states in that closing takes place all at one time. The buyer's
side is responsible for presenting all funds indicated in the contract
which are usually wired to the escrow account of the title company. The
seller brings the keys and has completely vacated the premises prior
to closing. Once everyone has signed all the documents, the keys are
given to the buyer who now owns the property and the funds that the title
agent is holding are disbursed to the seller or other parties named in
the contract (paying off the sellers existing mortgage, for example)
For the closing, you must bring a driver's license or passport to identify
you as the title agent must notarize many of the documents. |