Closing costs can be a bit of a mystery with regards to house purchasing, particularly if the individual buying has not been through it before. Although practically everyone has heard of them, if you have not had to pay them previously, you most likely don’t know what they are. Now and then even those who have paid closing costs, are not completely sure what their money was spent on.
Basically the closing costs are fees that every property buyer has to pay before any mortgage financier finalizes the mortgage. Using explanation average from the industry, it seems that between three to six percent of the worth of the loan, would be the amount of these fees. These costs are in addition to the deposit that you also need to pay. The following costs will compose a part of all closing costs you will need to pay.
Your loan application will incur costs, and the lender will charge your application fee to cover these. This fee will typically include a fee to acquire your credit report. Known also as points, a loan origination fee may also be charged by the lender. Points cover the expense of setting up and 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 financing without using points, instead charging a higher interest rate on your mortgage. Other lenders are happy for you to pay extra in points, to lower the amount of interest that you need to pay.
Another requirement of the bank will be title insurance. This insurance protects both the purchaser and the lender, in the event that the seller has no right to sell the property. 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.
All lenders will also require a property appraisal. The lender needs to make sure (and it makes perfect sense as an investor) that the property in question must be worth more than the amount loaned. Although not required by most lenders, a home inspection could be a great idea to assess the overall condition of the property. You may be able to recognize the charge for the property inspection as our element of the total closing costs.
Another requirement of the lenders will be homeowners insurance. 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.
Any tax that is payable on the transfer fees, is usually the responsibility of the buyer, except know there is understanding agreement in place to the contrary. 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. You may also have to pay any attorney and notary charges, as a component of your closing costs.
These various expenses are what make up your total closing costs that must be paid prior to your loan being finalized. The other fees, the points, are usually flexible, but will directly affect your agreed interest rate on the loan. 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.