When a home is sold there are some standard costs that are incurred. Usually these costs are divided between the seller and the buyer as stated in the contract of sale. Information related to these fees is listed in the following paragraphs. Taxes Property taxes is one closing cost that is usually prorated between the seller and buyer. If the seller has already paid the yearly/annual property taxes of the home, the buyer typically reimburses the seller for the period in which the buyer will be occupying the property. If the taxes have not yet been paid, the seller would then reimburse the buyer for the period in which the seller occupied the property. Transferred Taxes and Recording Fees This is the cost for transferring owinership of the property and recording any/all of the documents related to the purchase. This fee is often calculated as a % of the sales price. Origination Fee This covers the expenses in setting up and processing the loan. The loan origination fee may be a % of the mortgage amount. Points An option for the home buyer is to pay points to lower the interest rate at which the loan will be repaid. Each point equals 1% of the mortgage amount. An example would be: on a $100,000 loan, 1 point would equal $1000. Credit Report The lender of choice uses a credit report to determine the ability to pay of the person seeking a loan. This fee is often paid when the loan application is submitted. Escrow At closing a payment may be required to fund the escrow account when a lender is paying home insurance, property taxes or any other expense out of the escrow account. Interest Usually the buyer is required to pay interest on the mortgage loan to cover the time between the date of closing and when the first mortgage payment period starts. An example of this would be: If closing is on April 15th: your first monthly payment begins to acrue interest on May 1 with your first mortgage payment due June 1. At closing a payment for interest covering the period between April 15th and the end of April may be required. Homeowner's Insurance This type of insurance covers replacement costs for damages caused by fire, wind or other disaster that may affect the value of the property. It usually also includes personal liability and theft coverage. Flood or Quake Insurance This is hazard insurance coverage that is required for homes located in a designated hazard zone as established by the Federal Emergency Management Agency, sometimes referred to as FEMA. Private Mortgage Insurance (PMI) Insurance required for conventional mortgage loans when the borrower's down payment is less than 20 % of the loan value. Title Insurance This policy protects both buyer and lender by insuring a clear title. It basically insures that the person who is selling the home has the legal right to do so. Good Faith Estimate A home buyer will receive a Good Faith Estimate of closing costs at the time the loan application is submitted to the lender. The estimate is based on the loan officer's past experience and may not include all closing costs. These need to be reviewed in detail. |