First-time home buyers are sometimes surprised by the many fees at closing. A good realtor will inform their client that they will pay about 2.5 percent of the price of the home for closing costs. This amount may be as high as 3 percent or more in some circumstances.
Loan applicants must ask the lender for a Good Faith Estimate (GFE). Responsible lenders normally give you a GFE at the time of application. Regulations oblige lenders to disclose estimated closing costs and the Annual Percentage Rate within three days of the application. Loan contingencies vary and sometimes small changes will occur after the initial application.
Closing Costs Determined on Your Chosen Financing Option
Lenders propose several options for fees. One option is a "No Cost" loan. These loans are offered at a higher interest rate than traditional loans; basically your closing costs are included in your loan by the higher rate. Another option long-term buyers prefer is buying your interest rate down through points. Buying a point is one percent of the cost of the loan and typically equals a .125 lower interest rate. Decide your priority. First-time buyers are usually concerned about beginning costs.
Typical Closing Costs Checklist
Generally, a lender will charge an origination fee that can be one percent of your loan amounts as well as a processing fee. Processing fees begin at $350 and go up from there. If you are working with a mortgage broker, there may be bank closing fees too, including an underwriting fee and a doc preparation fee. These fees will generally total between $600 and $900. There are also title fees, title insurance fees, inspection fees and an appraisal fee. Title fees will vary depending on loan amount. Appraisal fees can cost approximately $350 or more. Since all of these fees can vary so much, the GFE is crucial.
Payments for Taxes, Prepaid Interest and Insurance are Deposited in Escrow
To procure financing for your new home, you are required to buy homeowner's insurance. The first year's premium will be paid at closing. The lender may require one or two months' interest at closing as well, since you have about a month of grace before your first mortgage payment is due. The later in the month you close on your home, the less interest you pay at closing. Depending upon the time of year you purchase and what property taxes have already been paid for the year, they will also collect four to nine months of property tax at closing.
Again, in order to prepare for closing costs, smart buyers refer to their Good Faith Estimate.
