Posted 07/18/2018

Closing Costs

What are closing costs?

Closing costs are fees paid at the closing of a real estate transaction. This point in time called the “closing” is when the title to the property is conveyed (transferred) to the buyer. Closing costs are incurred by either the buyer or the seller. They typically run from 2% to 5% of the loan cost. This includes property taxes, mortgage insurance, title search fees and more.

You’ll have to pay closing costs whether you’re buying a house or refinancing your mortgage. When you don’t fully understand what goes into a mortgage, it can be a real shocker to see the additional fees. But like anything, if you understand the what and the why’s of these closing costs, it is less of a shock and you’ll feel confident in knowing where the fees fit into your mortgage.

The total you’ll pay can vary greatly according to your home’s purchase price and loan amount. The average home buyer will pay between about 2% and 5% of the loan amount in closing fees. The lender is required to outline your closing costs in the Loan Estimate and this Closing Disclosure you receive before the settlement day.

Below is a breakdown of closing cost:

Application fee: This covers the cost of processing your request for a new loan which includes costs such as credit checks and administrative expenses.  *Mortgages Unlimited doesn’t charge an application fee.*

Appraisal fee: A lender will need to know if the property is worth as much as the amount being borrowed. This is for two reasons: The bank needs to verify that the amount you need for a loan is justified, and the bank also wants to make sure it can recoup the value of the home if you default on your loan. The average cost of a home appraisal by a certified professional appraiser ranges between $400 and $550.

Home inspection: Home inspections are not required but are highly recommended. A home inspection determines the present condition of the home’s major systems based on a visual inspection of accessible features. It focuses on the performance of the home, rather than cosmetic, code or design issues. A home inspector is sometimes confused with a real estate appraiser. A home inspector determines the condition of a structure, whereas an appraiser determines the value of a property.  *The home inspection fee is paid by the buyer separate of the mortgage closing costs.*

Assumption fee: If you take over (“assume”) the remaining balance of the seller’s mortgage, you may be charged a variable fee based on the balance.

Attorney’s fees: Not all states require an attorney to be present at the closing but there are a few and fees will vary.

Prepaid interest: Most lenders require buyers to pay the interest that accrues on the mortgage between the date of settlement and the first monthly payment due date, so be prepared to pay that amount at closing; it will depend on your loan size.

Loan origination fee:  The loan origination fee is a charge by the lender for evaluating and preparing your mortgage loan. This can cover document preparation, notary fees and the lender’s attorney fees. Expect to pay about 1-2% of the amount you’re borrowing for origination and lender fees.

Points: By paying points, you will reduce the interest rate you pay over the life of your loan. One point equals 1% of the loan amount. So, if the loan were $300,000, a 1-point payment would be $3,000. Talk to your Mortgage Consultant to determine if this is a good idea for you.

Title search fee: A title search is to prove that the person selling the house owns the home and that there are no outstanding claims or liens against the property.

Lender’s title insurance: Most lenders require what’s called a loan policy; it protects them in case there’s an error in the title search and someone makes a claim of ownership on the property after it’s sold.

Owner’s title insurance: Consider purchasing title insurance to protect yourself in case title problems or claims are made on your home after closing.

Mortgage broker fee: If you work with a mortgage broker to find a loan, the broker will usually charge a commission as a percentage of the loan amount. The commission averages from 1% to 2% of the home’s purchase price.

Mortgage insurance fees: Mortgage insurance application fee: If you put less than 20% down, you may have to get private mortgage insurance. (PMI insures the lender in case you default; it doesn’t insure the home.)

Upfront mortgage insurance: Some lenders require borrowers to pay the first year’s mortgage insurance premium upfront, while others ask for a lump-sum payment that covers the life of the loan. You can expect to pay from 0.55% to 2.25% of the purchase price for mortgage insurance.

FHA, VA and USDA fees: If your loan is insured by the Federal Housing Administration, you’ll have to pay FHA mortgage insurance premiums; if it’s insured by the Department of Veterans Affairs or the U.S. Department of Agriculture, you’ll pay guarantee fees. FHA insurance premiums are about 1.75% of the loan amount, while USDA loan guarantee fees are 2%. VA loan guarantee fees range from 1.25% to 3.3% of the loan amount, depending on the size of your down payment, how many times you’ve used your VA benefits on previous home purchases, and your branch of service.

Homeowners insurance premium: Usually, your lender requires that you purchase homeowner’s insurance before settlement, which covers the property in case of vandalism, damage and so on. Some condo associations include insurance in the monthly condo fee. The amount varies depending on where you live, your home’s value, and whether it’s in a potential disaster area (such as a flood plain or earthquake zone).

Mortgages Unlimited is a local mortgage company serving not only the Twin Cities but also, South Dakota, Florida and  Wisconsin. Minnesota Housing programs are not available in South Dakota or Wisconsin. We work on the behalf of our clients ensuring they are getting the best possible loan while providing outstanding customer service.

Give one of our Mortgage Consultants a call @ 763-416-2600 if you are looking to purchase a home or refinance your existing home loan. Or you start a secure online application at www.muiapply.com.

This entry was posted in Helpful Tips, Home Mortgages, Mortgages Unlimited Bloomington Office by Marilyn DiCharia. Bookmark the permalink.

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