Closing Costs Explained
Whether you are a buyer or seller, closing on a home should be an exciting experience. Once you understand the process and how it works, you not only will be better informed you will be stress free as you will be ready and understanding of the process as it unfolds. Both the buyer and seller have closing costs associated with the sale of a home. The costs are all delineated in what we call a HUD-1 form also known as a settlement statement. This form itemizes all charges imposed on a buyer or seller. Escrow issues several of them throughout the buying process but the final HUD is the one that has all the final ingoing and outgoing funds. Below are the majority of the fees explained to a buyer as the seller's costs are far simpler to explain. Seller's pay their share of title, escrow and transfer taxes. The seller's biggest expense is paying the agents' commissions which is a percentage of the total sale. They may pay for repairs and closing cost credits and a home warranty.
-Loan Origination Fee- This is the fee the lender charges to obtain financing and administrate your loan. It is a percentage of your loan but could be a flat dollar amount. There is also an "application and underwriting fee" that could be part of your loan fee. Shop your loan and obtain a Good Faith Estimate from your lender. 1% of your loan amount fee is standard, but lender programs are different. It is better to question fees at the beginning then at the end of an escrow. You could also pay a one-time charge to lower your interest rate. That fee is one percent of the loan amount.
-Appraisal Fees- This covers the cost to obtain an estimate of what your home is really worth. This fee is paid to a certified, licensed appraiser.
-Credit Report Fee- Pays for a credit report to be run to determine eligibility for a loan, how much a bank will lend you and at what interest rate.
-Mortgage Insurance Application Fee- A fee associated with processing an application for mortgage insurance. Many private mortgage insurers waive this fee.
-Assumption Fee- This is a charge associated with assuming the existing mortgage on a home that you want to take over from a distressed owner.
-Interest- Lenders may require payment of loan interest from the day of closing through the end of the month, and from then on interest is paid as part of the monthly payment.
-Mortgage Insurance Premium- At the close of escrow you may be required to pay a year's worth of mortgage insurance to a private mortgage insurance company who is going to guarantee your loan. Some companies may require a lump sum paid at closing that covers the entire length of the loan.
-Hazard Insurance- Many lenders will require payment of one year's homeowner's insurance, against fire, windstorms, rain, hail and natural hazards. Should your home be in a flood zone, you will need flood insurance as well and you may pay upfront for a yearly policy.
-Escrow & Impounds- An escrow company is a neutral third party that makes sure all the stipulations in the contract are agreed and adhered to by both parties. Escrow oversees everything and deals with the loan documents and the closing on your home. They charge a fee that is a percentage of the sales price. In Southern California this fee is usually split between both the buyer and the seller. Your property taxes, and various insurances may be required by the lender to be "escrowed" or collected monthly; which is a good way to budget rather than paying big bills in a large yearly payment.
-Title and Closing Charges- These fees cover the title search and examination, issuance of the title commitment and final title insurance policies. They ensure there are no pre-existing problems with the property you are buying/selling. They also charge a settlement fee for preparing documents and calculating figures and oversight of closing documents. You may chose your own title company to shop for a good price.
-Misc. Fees- There are fees that all homes sales will have and they are mostly governmental fees like a Notary fee. Recording fees ensure the local courthouse has all the correct papers. Transfer taxes to switch title from one owner to another which is $1.10 ten per every $1,000 dollars of purchase price.
Whether you are a buyer or seller, closing on a home should be an exciting experience. Once you understand the process and how it works, you not only will be better informed you will be stress free as you will be ready and understanding of the process as it unfolds. Both the buyer and seller have closing costs associated with the sale of a home. The costs are all delineated in what we call a HUD-1 form also known as a settlement statement. This form itemizes all charges imposed on a buyer or seller. Escrow issues several of them throughout the buying process but the final HUD is the one that has all the final ingoing and outgoing funds. Below are the majority of the fees explained to a buyer as the seller's costs are far simpler to explain. Seller's pay their share of title, escrow and transfer taxes. The seller's biggest expense is paying the agents' commissions which is a percentage of the total sale. They may pay for repairs and closing cost credits and a home warranty.
-Loan Origination Fee- This is the fee the lender charges to obtain financing and administrate your loan. It is a percentage of your loan but could be a flat dollar amount. There is also an "application and underwriting fee" that could be part of your loan fee. Shop your loan and obtain a Good Faith Estimate from your lender. 1% of your loan amount fee is standard, but lender programs are different. It is better to question fees at the beginning then at the end of an escrow. You could also pay a one-time charge to lower your interest rate. That fee is one percent of the loan amount.
-Appraisal Fees- This covers the cost to obtain an estimate of what your home is really worth. This fee is paid to a certified, licensed appraiser.
-Credit Report Fee- Pays for a credit report to be run to determine eligibility for a loan, how much a bank will lend you and at what interest rate.
-Mortgage Insurance Application Fee- A fee associated with processing an application for mortgage insurance. Many private mortgage insurers waive this fee.
-Assumption Fee- This is a charge associated with assuming the existing mortgage on a home that you want to take over from a distressed owner.
-Interest- Lenders may require payment of loan interest from the day of closing through the end of the month, and from then on interest is paid as part of the monthly payment.
-Mortgage Insurance Premium- At the close of escrow you may be required to pay a year's worth of mortgage insurance to a private mortgage insurance company who is going to guarantee your loan. Some companies may require a lump sum paid at closing that covers the entire length of the loan.
-Hazard Insurance- Many lenders will require payment of one year's homeowner's insurance, against fire, windstorms, rain, hail and natural hazards. Should your home be in a flood zone, you will need flood insurance as well and you may pay upfront for a yearly policy.
-Escrow & Impounds- An escrow company is a neutral third party that makes sure all the stipulations in the contract are agreed and adhered to by both parties. Escrow oversees everything and deals with the loan documents and the closing on your home. They charge a fee that is a percentage of the sales price. In Southern California this fee is usually split between both the buyer and the seller. Your property taxes, and various insurances may be required by the lender to be "escrowed" or collected monthly; which is a good way to budget rather than paying big bills in a large yearly payment.
-Title and Closing Charges- These fees cover the title search and examination, issuance of the title commitment and final title insurance policies. They ensure there are no pre-existing problems with the property you are buying/selling. They also charge a settlement fee for preparing documents and calculating figures and oversight of closing documents. You may chose your own title company to shop for a good price.
-Misc. Fees- There are fees that all homes sales will have and they are mostly governmental fees like a Notary fee. Recording fees ensure the local courthouse has all the correct papers. Transfer taxes to switch title from one owner to another which is $1.10 ten per every $1,000 dollars of purchase price.
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