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What are Closing Costs?
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Closing costs are the costs the borrower should pay at the time of closing in addition to the down payment and points. It is also called 'settlement' costs. Once the loan is applied by a buyer, a lender takes about six to seven weeks to complete the evaluation of the application of the loan submitted to them. In formation needed must be provided by the buyer and then the application will be processed. If the loan is approved, a closing date is set up and the lender reviews the closing with the buyer. Then the house can be immediately occupied by the buyer.
The closing requires a thorough examination of the house, checking of walls, ceilings, electrical, plumbing and outdoor units. If issues are found, it should be brought up before the closing and these are set right by the seller himself. Closing costs include getting a loan, charges for establishing, transferring ownership and amount paid to government attorneys or escrow fees.
a) Attorneys or Escrow Fees
When an attorney is worked with in the process of buying a house, they usually charge a percentage of the selling price, about three quarter to one percent or on an hourly basis. This should be paid at closing.
Escrow is a procedure in which a third party acts as a stake holder for both the buyer and the seller, carrying the instructions of both the parties and then assuming responsibilities for handling the paper work and distribution of funds. An escrow fee is paid by the buyer and is charged by a title company to service the transaction to escrow money and documents.
b) Property tax is an amount to cover the tax period up to date.
c) Interest is paid from the date of closing to thirty days before first monthly payments. Interest rates start soon after closing where the lender calculates the amount of interest the buyer owes for the fraction of the month in which it closes.
d) Origination or Application fee for processing the mortgage application can be a flat structure or a percentage of the mortgage. If a small down payment is made then the lender requires a credit report which is a part of the origination fee.
e) Point - It is equal to 1% of the amount borrower and is paid when the closing arrives. If it is paid earlier, it is deductible on the income taxes in the year it is paid.
f) Document preparation fees is the fee for the papers ranging from the application to the acceptance of closing documents. This is charged by the lenders separately or in the attorney.
g) Appraisals - To make sure the property is worth as much as the mortgage professional property appraisers compare the value of the house to similar ones in the neighborhood which requires to be paid.
h) Land Survey- Verification of a land survey is done by the buyer where a surveying firm is approached. This needs a payment.
i) Inspection -Termite inspection, water test for maintenance of water system to provide adequate supply of quality water needs to be done which is included in the closing costs.
j) Title Search and Title Insurance - To ensure that the seller is the owner of the property a title search is required and it will declare that the title is clear. It means that there are no other legal claims against the property with respect to unpaid bills or non-payment of taxes. For this, the payment is done by the buyer.
Title insurance gives the buyer a title which means that the insurance company will protect the owner if there is a flow in the title after purchasing the property. Buyers also may need to pay home owner's insurance for the first premium and submit proof of payment at the closing, to be sure that the investment is secure even if the house is destroyed under any circumstance.
k) Commission - The seller has to pay a commission to the real estate agent if needed to negotiate between the seller and the agent.
l) Government Costs -
Transfer taxes to transfer the title from seller to the buyer by the government bodies need to be paid.
To record, the mortgaging and change of property the county clerk is paid the recording fees.
Mortgage taxes levied by local bodies and state government must be also included in the closing costs.
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