As I begin the process of locating and buying my first home, my mind is loaded with questions. This week, I’m answering the five biggest ones (for me, at least) in detail.
I’ve heard all sorts of horror stories about the ridiculous items that mortgage lenders and other such nefarious fellows like to slip into that group of payments collectively referred to as closing costs. Since I only knew that there were a lot of potential fees – and I didn’t have the foggiest idea what some of those fees were – I made a list of many of the normal closing costs that you might be charged with. You may see ones that are outside this list – if you do, ask about it and see if you can avoid it.
Without further ado, here are the closing costs I found during my research.
Loan origination fees These are commonly called points and are equal to one or two percent of the cost of your home loan. You can look at it as a way to get a better interest rate: you can get a loan without paying these, but you should expect to pay a higher interest rate if you do. In other words, you’re generally better off paying the points.
Homeowner’s insurance You have to get homeowner’s insurance before you can get a home, and the insurance provider usually requires six months or a year’s worth of premiums for insurance. This could run up to a thousand dollars or so, but then you’re insured for the first year.
Escrow fees These are the costs associated with handling your funds in a way that protects both you and the seller. These fees usually run around a thousand dollars.
Title insurance This is basically a guarantee that the home’s seller isn’t up to some sort of shenanigans involving the title. For example, an unscrupulous seller might try to sell a house that they don’t own. Title insurance protects you and your lender from such fraud.
Legal fees These vary from state to state, depending on whether or not real estate agents are allowed to complete the transaction process. If not, you’ll have to kick a few hundred dollars to a lawyer.
Property taxes If you close witin a paid tax period, you’ll owe the previous owner for the taxes they paid for you. If you close at the end of one, you’ll have to pay the taxes for the next period quite quickly.
Private mortgage insurance (PMI) If you’re paying less than twenty percent down, your lender might require private mortgage insurance (are you getting sick of insurance, too? It’s the result of too many people trying to run scams). If they do, you’ll probably have to pay a year’s worth of premiums in advance, which could add up to a thousand or so.
Prepaid loan interest In advance, you’ll have to pay the amount of interest that accrues from the day your loan closes to the day your first payment is due. This also could be up to a thousand dollars depending on the date.
Courier fees The documents must be delivered safe and fast. Be prepared to pay $50 (at least) for the service.
Notary fees and recording fees All of the documents must be legal and be recorded with the county. This will rack up another $100 or so in fees.
In other words, you should have $5,000 (at least) ready to go for the final home purchase.
I hope you enjoyed this series and found it as informative as I did.