Closing costs are simply the fees, costs and taxes associated with purchasing a home, the borrowing of money, and the preparation of necessary paperwork to finalize the sale. Closing cost totals vary depending on where your new home will be located, what type of property you are buying, price of the home, and the complexity of the transaction. Since closing costs can easily represent thousands of dollars, it is extremely important that you work closely with your real estate agent and lender in the early stages of the home buying process to determine what these costs could be.
The main categories are:
- Discounts Points to Buying Down the Mortgage
This fee is optional and can vary significantly from 0.5 to 3 points on the total of the mortgage. It is a one-time charge that is calculated based on the amount of the mortgage loan. A buyer would pay this amount up front to reduce the ongoing cost of the mortgage over the life of the loan. This charge is fully deductible as mortgage interest.
- The Costs of Originating the Mortgage
These costs generally include a variety of fees such as the loan origination fee, the appraisal fee and the cost of credit reports. Additional fees expected at closing are: hazard and mortgage insurance and interest accrued on the mortgage between closing date and the end of the month.
- Taxes and other Local Fees
These charges will vary according to the requirements of local governments. Some may demand that your property taxes be pro-rated according to when you will officially become the owner of the house. There can also be personal property taxes, homeowner’s association dues, and other assessments that are specific to the area that you are moving to.
- The Cost of Documentation
You will have to pay for any research involving public records and the title history on the property you are buying. This insures that the title on your property is unencumbered by other ownership or liens and can be delivered to you at closing. Other costs include Recording and Transfer fees that cover the legal recording of the deed into your name.
- Inspections
As a prospective homebuyer, are you qualified in identifying problem areas with your potential new home? Most of us are not knowledgeable in identifying potential problem areas. You are in the process of making a very large investment, maybe the largest investment you’ll ever make. For just a small investment now, you may save substantial money in the future. In most cases, hiring a professional home inspector to survey the internal and external premises for the integrity of the dwelling’s components is the safest measure you can take. Inspectors assess Structural, Electrical, Plumbing and Built-in Appliances among other items.
It is critical that you have a clear understanding of the total cost of your closing. Your bank lender or the attorney/escrow company should supply you with a detailed estimate well in advance of the actual closing.
