Closing costs can be a bit of a mystery when it comes to property shopping, particularly if the individual purchasing has not been through it previously. It is likely that you have heard about them, but never having had to pay them, means that you probably don’t completely understand what they are. At times even people who have paid closing costs, are not entirely certain what the money was spent on.
Generally there are always a variety of fees that must be paid by the home purchaser, before the lender can complete the new loan. These are called closing costs. Those charges will typically vary from 3 to 6 percent of the full sum borrowed. This sum will be additional to any deposit that may be necessary. The following costs would make up part of all closing costs you would need to pay.
Your loan application will incur costs, and the bank will charge your application fee to cover these. Getting a copy of your credit file is typically a part of this fee. You may also be charged a loan origination fee, which is also recognized as points. This is the fee which will take care of the costs of handling your loan. As a gauge that you can use, one point is the equivalent of one percent of the amount borrowed.
Some lendersare happy to complete the loan without using points, instead charging a higher rate of interest on your loan. Some other financiers are glad for you to increase the points expenditure, permitting you to take advantage of a lesser interest rate.
Your bank will also want title insurance. Title insurance is there to protect the bank and the purchaser, in a case where the seller does not have legal right to sell the house. For example, if there is money owing on a lien against the property, or if there are co-owners named on the title. Any of these situations could legally prevent the seller from disposing of the property independently.
An appraisal on the property will always be required by the lender. The lender needs to make sure (and it makes perfect sense as of Closing Costs and Points investor) that the property in question must be worth more than the amount loaned. Sometimes it is a good idea to have a home inspection conducted by the professionals, and this will show what expenses may be required over any given time frame. You may be able to recognize the charge for the property inspection as Points and Closing Costs element of the total closing costs.
Homeowners insurance will also be a requirement of all lenders. In some cases the lender may demand that you pay the first year of insurance, prior to agreeing to close on the loan, but all will expect to see proof that you have insurance in place. You may also be asked to obtain private mortgage insurance, in which case at least a part of the fees paid will be calculated in your total closing costs.
Unless otherwise agreed to as a part of the transaction, any taxes owing on transfer fees will be borne by the property buyer. You may also be required to conduct a property survey, and this is something else that you will need to pay for. You will find that lenders could expect you to pay the amount of any interest incurred between the funding date, and the date of the first subsequent mortgage payment. Fees will also need to be paid for attorneys and for notary’s, which will form part of your closing costs.
So, basically the closing costs are all of those expenses that need to be paid before you purchase your new home. Points on the other hand may be flexible and will directly impact on your final interest rate. Understanding these vital terms, and being able to assess exactly what they mean for you, means you will well prepared to know what to look for facts you need to.