Buying a house costs a great deal of money and takes plenty of hard work. Depending on your needs and expectations finding the right home may be the majority of the battle. However, at some point you will find the ‘perfect’ house for you. This will lead to an amazing rush. Just knowing that you’ve found a home of your own is a great feeling. You aren’t at the end of the road yet, though. The last phase in your journey, before the house becomes yours, will be the closing costs.
You will have to jump through multiple hoops before the house can officially change hands. You should expect to deal with price negotiations, inspections, and possible renovations that are meant to occur before possession to the home is taken. Once you get to the closing costs you are doing great and are almost home free, literally.
Unfortunately, when it comes to closing costs the potential for disaster can be quite high if you do not know what to expect. Unless it is agreed upon before hand the buyer, which would be you in this case, would be responsible for the complete amount owed during closing. This could range in the thousands and for many it can come out as being quite a shock. Hopefully this article will help you to understand the costs associated with closing on the house you plan to purchase.
The easiest way to explain closing costs is to offer you a list of all of the possible closing costs. In truth, there are many things that could warrant a closing fee, but every home buying situation is different. Chances are, you will not have all of the fees that are listed in this article. However, you should always expect to pay more then less when it comes to closing costs. Otherwise, you will be in for quite a shock.
As stated you can also negotiate with the seller and see if they will either pay all or a partial amount of the costs. There is a good chance they will and this can remove or at least elevate a big chunk of the burden that is placed upon you.
Before you go into your closing your mortgage lender should give you a copy of a good faith statement. This statement should list your settlement or closing costs. These are the prices you will initially pay so that you can take possession of your home and move in. These will need to be paid for at the time of closing with a cashier’s check. In most cases the check will need to be made out to the lender for the price listed on the statement they have given you.
If you’re wondering why a cashier’s check is necessary it is because that is the equivalent of cash. The lender will not be forced to hold a check or wait for it to cash and you will have the copy of the receipt that comes with writing a check. Basically, in this case both parties win which is why it is so convenient and accepted by most lenders and buyers alike.
The lender or title company that is associated with your pending mortgage should explain the costs that you are being charged on the day of the closing. If they do not explain them you should ask to be certain of the charges. This is especially true if you are not sure why you are paying for something. Here are some of the things you may be charged for though keep in mind that each home sale is different as are the prices for each sale.
This fee has the widest range for a possible price that is based on each individual situation and sale. In some instances, you will be able to purchase a home for no money down while other people will want to place as much money down as possible. This price is generally agreed upon well before the time comes to have to pay it. You will know in advance how much you are paying because it will be one of the things you discuss when your lender when you are attempting to get your mortgage for the new home. The perks in paying a larger down payment involve having less of a house payment to pay both overall and on the monthly bill you will be charged.
Every home on the market should have an appraisal completed before the home sells. This allows the seller to know what their home is worth and the buyer to know they are not being overcharged. Some states require that you have an appraisal and others will not. If you are a buyer and an appraisal has not been done on a house you are considering it would be wise to at least question why this has not occurred. Depending on the specific situation this may not be a price that falls on your shoulders. The majority of times this is a price that is split by the buyer and seller or one the seller takes on completely because it was necessary to have the appraisal done in the first place.
Loan Origination Fees
No matter what your situation is when you are closing you will have to pay a loan origination fee. This fee will vary from situation to situation based on the size of the company you are borrowing money from, the size of the loan itself, and various other factors. No matter the amount you will pay, this fee is necessary in 9 out of 10 cases. This will be a fee that you encounter when closing costs occur.
A credit report is going to be an unavoidable cost during the home buying process. In order to even get a mortgage approval the lender is going to want to see your FICO score and discover what other creditors have to say about you. Once they discover your credit history the lender will be able to offer a pre-approval rate so you get a general idea of how much you will be able to spend on your new home.
It should be noted that just because you have received a pre-approval offer it does not mean that when it’s time to get the mortgage that it will be for the pre-approval price. Most lenders are not able to offer you a positive price at the time of pre-approval. This is because the process of becoming pre-approved is brief and does not involve a steady stream of information and financial history. The lender will peek into your records to give you an idea of a ballpark figure for what you will pay, based on your situation.
These are things that should be discussed when you are choosing your mortgage. Points are part of a system that allows you to pay lower interest for a certain period or have the advantage of paying a lower down payment. Think of points as money. This system will work out well for some and it will have disadvantages for others. If you are not planning to live in your home for a long period taking points on your mortgage is not recommended. It is possible to get good deals if you choose a mortgage with points but you should ask enough questions to ensure it’s a good deal and not something you will end up paying for later! In some cases the options of points will not be available for you. This depends on the specific mortgage and your specific lender program.
Private Mortgage Insurance Premium
Private mortgage insurance is an optional expense that can speed up the process of moving into your new home. Whether you choose this insurance or some other kind home owner’s insurance a form of insurance is required at the time of closing in most states. The first payment you pay will be due at closing and will be the premium. One advantage to PMI is that you have the ability to end up paying a lower down payment if you decide to sign up for this form of insurance.
There are many other fees that you may have to pay at the time of closing. Home buyers may have to pay for less then what was listed, or they may have a much longer list. It is hard to speculate without knowing the specifics.
Some additional fees that could be added depending on your situation include:
- Attorney Fees
- Deed Recording
- Inspection Fees
- Notary Fees
- Property Tax Escrow
- Prorated Utility
- Survey Fees
- Title Insurance
This may seem like way too many fees, but then again you may not have to pay anything but your down payment and who knows you may not even have to end up paying that! Regardless of what you end up paying the satisfaction and comfort of home ownership will prove to be worth it as long as you act responsibly and make sure the costs you pay are ones that you can afford.