August 9th, 2017 5:05 AM by Jackie A. Graves, President
Buying a home can cause sticker shock when you consider that
hundreds of thousands of dollars are on the line. Before you close the deal,
you’ll need to prepare yourself for another financial shocker: closing costs.
You’ll have to pay closing
costs whether you’re buying a house or getting a mortgage refinance. It may be a bit
overwhelming when you get your first look at the various costs you’ll have to
pay to close your loan.
don’t stress. We’ve broken down what you’ll have to pay — property taxes,
mortgage insurance, title search fees and more. Closing costs will make more
sense once you understand what they cover, and how they protect the
biggest investment you’ll likely make in your lifetime.
total you’ll pay can vary greatly according to your home’s purchase price. The
average homebuyer will pay between about 2% and 5% of the loan amount in
Your lender is required to
outline your closing costs in the Loan Estimate and this Closing Disclosure you receive
before the big settlement day. Take the time to review them closely and
ask questions about things you don’t understand.
a closer look at the closing costs you’ll face.
fee: It’s important to a lender to know if the property is
worth as much as the amount being borrowed. This is for two reasons: The bank
needs to verify that the amount you need for a loan is justified, and the bank
also wants to make sure it can recoup the value of the home if you default
on your loan. The average cost of a home appraisal by a certified professional
appraiser ranges between $300 and $400.
inspection: Most lenders require a home inspection, especially if
you’re getting a government-insured mortgage. Before lending you hundreds of
thousands of dollars, a bank needs to make sure the home is
structurally sound and in good enough shape to live in. If the
inspection turns up troubling results, you may be able to negotiate a lower
sale price. But depending on how severe the problems are, you have the
option to back out of your contract if you and the seller can’t come to an
agreement on how to fix the issues. Home inspection fees, on average, range
from $300 to $500.
fee: This covers the cost of processing your request for a new
loan and includes costs such as credit checks and administrative expenses. The
application fee varies depending on the lender and the amount of work it takes
to process your loan application.
fee: If you take over (“assume”) the remaining balance of the
seller’s mortgage, you may be charged a variable fee based on the balance.
fees: A number of states require an attorney
to be present at the closing of a real estate purchase. Depending on
how many hours the attorney works your case, the fee can vary dramatically.
interest: Most lenders require buyers to pay the interest that
accrues on the mortgage between the date of settlement and the first monthly
payment due date, so be prepared to pay that amount at closing; it will depend
on your loan size.
origination fee: This is a big one. It’s also known as an underwriting fee,
administrative fee or processing fee. The loan origination fee is a charge by
the lender for evaluating and preparing your mortgage loan. This can cover
document preparation, notary fees and the lender’s attorney fees. Expect to pay
about 1% of the amount you’re borrowing (a $300,000 loan, for example, would
result in a loan origination fee of $3,000).
paying points, you reduce the interest rate you pay over the life of your loan,
which results in more competitive mortgage rates. One point equals 1% of the
loan amount. So if the loan were $500,000, a 1-point payment would be $5,000.
Generally, paying points is worthwhile only if you plan to stay in the home for
a long time. Otherwise, the upfront cost isn’t worth it (check for yourself with our calculator
broker fee: If you work with a mortgage broker to find a loan, the
broker will usually charge a commission as a percentage of the loan amount. The
commission averages from 1% to 2% of the home’s purchase price.
insurance application fee: If you put less than
20% down, you may have to get private mortgage insurance. (PMI insures the lender
in case you default; it doesn’t insure the home.) The application fee varies by
mortgage insurance: Some lenders require borrowers to pay
the first year’s mortgage insurance premium upfront, while others ask for a
lump-sum payment that covers the life of the loan. Expect to pay from 0.55% to 2.25% of the purchase
price for mortgage insurance, according
to Genworth and the Urban Institute.
and USDA fees: If your loan is insured by the Federal Housing
Administration, you’ll have to pay FHA mortgage insurance premiums; if it’s
insured by the Department of Veterans Affairs or the U.S. Department of
Agriculture, you’ll pay guarantee fees. FHA insurance premiums are about 1.75%
of the loan amount, while USDA loan guarantee fees are 2%. VA loan guarantee
fees range from 1.25% to 3.3% of the loan amount, depending on the size of your
assessments: If your condo or homeowner’s association requires an
annual fee, you might have to pay it upfront in one lump sum.
insurance premium: Usually, your lender requires that
you purchase homeowner’s insurance before settlement, which covers the property
in case of vandalism, damage and so on. Some condo associations include
insurance in the monthly condo fee. The amount varies depending on where you
live, your home’s value, and whether it’s in a potential disaster area (such as
a flood plain or earthquake zone).
taxes: Buyers typically pay two months’ worth of city and county
property taxes at closing.
search fee: A title search is conducted to ensure that the person
selling the house actually owns it and that there are no outstanding claims or
liens against the property. This can be fairly labor-intensive, especially if
the real estate records aren’t computerized. Title search fees are about $200,
but can vary among title companies by region.
title insurance: Most lenders require what’s called a loan policy;
it protects them in case there’s an error in the title search and someone
makes a claim of ownership on the property after it’s sold.
title insurance: You should also consider purchasing title insurance to
protect yourself in case title problems or claims are made on your home
By Deborah Kearns - To
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