Monday, October 27, 2014

Everything you need to know about real estate closing costs.

When you’re buying or selling a home, there are a lot of people working hard for you to make sure the transaction goes smoothly, is error free, and to safeguard your best interests. They include appraisers, banks, home inspectors, loan officers, title and escrow staff, and many more. The fees for the various services inherent with the purchase or sale of a house are collectively called, closing costs.

It’s estimated that closing costs usually account for around 3-5% of the purchase price of the house when you're a buyer though those costs could fluctuate based on your situation (like if you’re taking out a mortgage to buy the property or just paying cash.) The good thing is that when you buy a home, your Realtor’s commission is paid for by the seller, which is usually 2.5%-3%.

When you are selling your home you take on paying both commissions – for your Realtor and for the Realtor who brought you a buyer and represents them. But of course you don’t need to pay for a mortgage loan when selling or any of those costs.

Like we mentioned, closing costs vary from place to place and based on the individual situation. For example, some states use separate title and escrow companies, some use combined title & escrow firms, and some use real estate attorneys, instead. But the here is an explanation of the typical closings costs you’ll see in most residential real estate transactions.

A point is an amount equal to one percent of the total amount of the mortgage loan you are taking out (not the total purchase price.) There are two classifications of points you may see:

Origination fee (also called points.)
This is the fee you will pay the lender for their service of delivering an approval for your purchase loan.

Discount points.
These points are essentially up front money you pay to “buy down” your long term interest rate. Typically, for each discount point you buy, your long term rate will be lowered by 0.125 – 0/375 percent. For those who plan to stay in their home – and their loan – a long time, discount points may save them big money.

Application fee.
$250 - $750. Goes to the lender.
When you first apply for a mortgage loan to acquire the house you want to buy, lenders and brokers may charge this fee as a general cost of doing business. They also usually have flexibility to waive the fee, apply it toward closing costs, etc.

Appraisal fee.
$350-$500. Goes to the appraiser or lender.
Every bank or lender will require that you get a certified appraisal on the home you are buying, which is a assessment of its value. This is an important step in the process, as it ensures the buyer is getting equitable value for the price they are getting.

Credit report fee.
$25-$45. Goes to the lender.
This fee covers the lender’s cost to pull your credit report, which is part of the loan application process.

Processing fee.
$500-$1,000. Goes to the lender.
Almost all lenders have a staff of people who meticulously prepare the documents of the loan application and real estate transaction for submission to the bank or lender’s underwriters.

Underwriting fee.
$200-$800. Goes to the lender.
Underwriters at the bank or mortgage company where you are applying for the loan will scrutinize your application and details of the transaction and decline or approve the file, or issue a conditional approval (the vast majority of the time) with stipulations for the borrower to meet.

Escrow fees.
$ varies based on location and home price. Goes to the escrow company.
While a few states use attorneys, most still use escrow companies, which are neutral third-party companies who facilitate the whole transaction and coordinate closing between the bank, lender, buyer, seller, etc. as well as handle the money.

Title insurance.
$200-$900. Goes to the lender’s insurance policy.
Title insurance is insurance taken out and paid for by the seller for the home buyer, while the home buyer pays their own insurance to protect the lender, who has a legal claim against the property until the mortgage is paid off.

Transfer taxes.
$ Varies. Goes to the lender, county, or municipality.
This fee pays for the service of transferring the tax responsibility for the property from seller to buyer.

Title company fee.
$150-$400. Goes to the title company.
The title company does conducts their due diligence to make sure the property is free and clear from issues about ownership or disputes about use.

Survey fee.
$100-$400. Goes to the title company.
This fee pays for a land survey, which determines the legal boundaries and definition of the property being sold. Some times, survey fees are lumped in with other title fees.

Document prep fee.
$25-$200. Goes to lender or title company.
This is a fee for producing and printing the hundreds of pages of documents needed in any real estate ransaction.

Home inspection.
$350-$500. Goes to home inspector.
The best money you’ll ever spend as a home buyer is for a thorough examination by a well-qualified home inspector. They will prepare a detailed report disclosing the condition of your property and any problems or defects, particularly with electrical systems, plumbing, some appliances, foundation, etc.

Pest (termite) inspection.
$50-$125. Goes to pest inspector.
California requires a pest inspection for each real estate transaction, to ensure there aren’t problems with termites, other active infestations, dangerous molds, etc.

Flood certification fee.
$15-$30. Goes to lender or insurance issuer.
Some times it’s necessitated that the insurance company determines whether your home lies in a flood zone or special flood zone, which is paid by you.

Recording fees.
$50-$200. Goes to the county or municipality.
This fee covers the cost of having your home sale or purchase officially registered as a matter of public record with the country government, meaning it’s official!

Courier fees.
$50-$150. Goes to lender or courier company.
Courier fees cover the cost of transporting documents back and forth between the lender, title company, escrow company, state recorder, etc.

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