Understanding Closing Cost And How To Get Them Lowered
October 14, 2016
When you are saving for your down payment, you do not want to forget about saving for your closing cost as well. Closing cost are the fees that you pay to obtain a mortgage loan. These fees are paid to the people that assist in purchasing your home like the lender, real estate agents, appraiser, and any other third parties that are involved during the process of purchasing your home. The total closing cost are normally between 2%-5% of the sales price. The seller or buyer can pay the closing cost. Most of the time in regular residential purchase the seller pays the majority of it. But nothing is ever set in stone when it comes to who will pay the closing cost. There are different variables in every transaction that determines if the buyer or seller will pay a portion or all of the closing cost. If someone tells you that they did not pay any closing cost, asked them what was negotiated first. You cannot assume that will be the same scenario for your transaction. The party that will pay can vary from one transaction to the next.
Basic Closing Cost Include:
* Appraisal Fee - The fee paid for the appraisal report prepared by the appraiser.
* Lender Origination fees - The fee the lender charges you to originate the loan. Processing the application and other administrative fees.
* Credit Reporting Fees - The amount it cost to pull your credit.
* Tax Services - Of course taxes will be paid when ownership is transferred. The percentage of taxes to be paid up front are based upon your municipal government (local government) tax rate.
* Attorney Fees - The fees to the attorney for coordinating the entire process, title examination, reviewing documents, disbursing all funds to all of the parties involved, recording the transaction with the court, etc.
* Underwriting Fees - Paid to the lender for the research involved with approving you for the loan.
* Title Services - Fee paid to the title company for the title search and title insurance.
* Survey Fee - Fee paid to the surveyor (they determines property lines) if your lender requires a survey.
* Government Recording Fees - Fees for legally recording the new deed and mortgage.
*Homeowners Insurance Premium - The amount the lender charges upfront for homeowners insurance to protect you and the lender against, fire, natural disasters, etc.
*(MIP) Mortgage Insurance Premium (conventional loan)/ (PMI) Premium Mortgage Insurance (FHA loan) - The percentage paid upfront for the mortgage insurance in case you default on your loan.
*Termite Letter or Pest Inspection - The fee you pay if the lender requires a termite or pest inspection.
Tips On Lowering Your Closing Cost
Some fees like appraisals and credit reporting fees are standard, but some fees are not. Most people do not know that a lot of the closing cost fees are negotiable. Lenders can give you discounts on some of the fees. People usually just take the prices they get on the GFE (Good Faith Estimate) and run with it, not knowing they are negotiable. That is why I always tell people to always shop around for a mortgage.
When you are shopping around for a mortgage, get at least 3 quotes like you would for car insurance. Because lenders may lump certain items together or have different names for different fees, it is always good to ask for a complete GFE (Good Faith Estimate). The GFE will individually list each fee separately so you can get a clear view of everything you will be paying. Ask the lender to take the time to explain each line item to you.
Cost like legal fees, title insurance, loan origination fee, rate lock fees, underwriting fees, and loan processing fees can either be lowered or eliminated.
To sum things up, do your homework to save cost and to be prepared for the amount that will be needed to close on your home. You do not want to realize late in the process that you need more money than expected right before your closing. If you don't have enough money towards the end of the process, that can be a nightmare. If you find out after your due diligence period is up, you will loose the money you have already invested like your earnest money, inspection and appraisal money. Like I always say...Be prepared!
The list below is a list of guaranteed or possible fees that can be included in closing cost. The items included or not included will depend on your individual transaction.
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