How Much Do You Know About Closing Costs?

Written by Posted On Wednesday, 09 October 2013 08:10

When you buy a home, it's important to be financially prepared up front for all of the costs, large or small, straightforward or unexpected, that you might need to cover throughout the process. As you calculate the amount of down payment you can afford, shop around for favorable interest rates on your mortgage loan, and determine what your monthly living expenses will be, it's important to remember that when your home sale closes, you will also need to think about closing costs.

Closing costs are expenses associated with the sale of a home that may be owed by the buyer, the seller, or both parties. Some closing costs may be rolled into your loan, but some may not. Every home sale is unique, but here are just a few examples of the costs that might arise when you close on your home sale:

• Brokerage commissions. Usually paid by the seller, commissions are owed to the real estate agent for marketing a home, locating a buyer, and helping to negotiate the sale.

• Title exam and insurance. When buying a home, you'll need to confirm that there are no competing claims against the property. A title exam verifies this so that the title can be legally transferred to the buyer; title insurance ensures that the property title is valid.

• Attorney, escrow, and closing fees. These are fees paid for document preparation. They can be paid by the seller, the buyer, or both parties.

• Mortgage application fee. While the buyer often pays this fee to the lender up front, it is sometimes rolled into the closing costs.

• Credit report. The lender charges the buyer this fee to run a credit check to determine loan eligibility and what interest rate the buyer may qualify for. This may be paid at the outset of the transaction or may be included in closing costs.

• Other lender fees. Other fees paid to the lender might include underwriting and processing fees. Paid to the lender by the buyer, these are expenses incurred in order to research and approve the loan.

• Recording fees. These costs pay for the creation of an official record of the property exchange and can be paid by either the buyer or the seller to the municipality in charge of land records.

• Inspection and appraisal. Both a licensed appraisal and a professional home inspection are usually required by the lender as part of the terms of the loan. Buyers typically pay these fees; the appraisal verifies the value of the property, while the inspection determines whether the property is in acceptable condition.

• Wire transfer or courier fees. These fees cover document transportation.

• Document or transaction taxes or stamps. This expense is a legally required excise tax on the transaction and may be paid by either the buyer or the seller, depending on location.

• Discount points. Typically referred to as simply "points," discount points are a type of prepaid interest on the loan. One point is equivalent to one percent of the loan principal. Points are paid in exchange for an overall lower interest rate on the loan and can help lower monthly payments for the life of the loan.

Depending on where you live and the negotiations specific to your sale, other types of fees may be included in closing costs. To make certain you understand all the costs in involved in your sale, speak with your real estate agent and lender up front so there are no surprises when you finally close the deal.


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Jason Bonarrigo

Senior Mortgage Banker, RMS Mortgage NMLS#698459

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