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 Closing and Closing Costs
What actually happens at the closing? Methods are a bit different across the country, but some points will be covered no matter where you live as are specified in the Real Estate Settlement Procedures Act of 1974. (You can access a description of this law at the HUD website. www.hud.gov)
Keep in mind that unless everything is paid at the closing, the property does not change hands so it is important for you to go over all the charges that are expected of you with your agent before the closing date.
Closing costs can run as high as 6 percent of the sale price of the home. With a $100,000 home you could pay $6,000 but these costs vary widely depending on a variety of factors:
- what the lender charges
- what the custom is in your community or your part of the country
- what you have already paid before the settlement
- what fees you have negotiated with the sellers for them to pay.
Mortgage-Related Charges
Loan origination fee.
This fee covers processing your mortgage. It might be stated as a percentage of the loan or as a flat fee.
Loan discount or points.
This is a one-time charge to "adjust the yield" on the loan. One point is one percent of the loan. The buyer usually pays the points.
Appraisal fee.
Mortgage lenders require an appraisal of the property you want to buy, for their own protection. The fee is usually paid by the buyer, but this could be negotiated.
Credit report fee.
This fee can also be paid when making a written loan application rather than at the closing. Whether you get the loan or not, this fee is nonrefundable.
Lender's inspection fee.
Here is a charge that is applicable to new home buyers. Representatives of the lender must make several inspections at various stages of the building process.
Mortgage insurance application fee.
This fee covers the processing costs for applying for private mortgage insurance (PMI), if you plan to purchase such coverage. sometimes it is paid in advance of the closing.
Assumption fee.
Those assuming a loan pay this charge, it covers the processing work involved in the assumption.
Special Items required by the Lender
Interest.
Usually buyers must pay this charge at the closing. It is the interest on their loan for the period of time between the closing date and the date the first scheduled loan payment is due.
Mortgage insurance premium.
The initial premium is often paid in advance, at the request of the lender. It can cover several months or be a full year's premium.
Homeowners insurance premium.
Your lender could require a first check for this policy.
Hazard insurance program.
If it has been determined that your home is in an area calling for some type of hazard insurance, the lender will require proof of payment of the first year's insurance premium at the closing.
Special escrow funds
Hazard insurance.
Some lenders require that a certain amount of money toward the next year's premium on hazard insurance be on reserve.
Private mortgage insurance.
A part of this premium may be placed in a reserve account rather than be paid in advance at the closing.
Real estate taxes.
This can be a hefty charge of several hundred dollars. Most lenders require a regular monthly payment to the reserve account in your name for city and/or county property taxes. They may also call for an amount of up to six months' taxes to be paid at the closing and held in an escrow account.
Special assessments.
Like the tax escrow account, these monies are held in escrow to make payments due either annually or at intervals throughout the year. The funds can be spent for local improvement assessments such as sewers, traffic lights, sidewalks, or they can represent neighborhood or home owners association dues.
Title Services
Title search, title examination and title insurance binder.
These are charges made for the title search and guarantee services.
Other Settlement Charges
Settlement or closing fee.
This amount goes to the closing agent. Whether the buyers or the sellers pay it can be negotiated before the contract is signed.
Document preparation.
An amorphous-sounding service, this is a final preparation of legal papers, for which you may also be charged. Be sure, however, that you are not paying twice for the same service. It might be included in the preparation of the mortgage.
Notary fee.
This fee is paid to a licensed notary public to authenticate the execution of certain applicable documents.
Attorney's fee.
If a lawyer is required by the lender, the fee will appear on the Uniform Settlement Statement. If you have engaged an attorney to represent you for this purchase, his or her charge will be a separate bill to you.
Government recording and transfer fee.
Charges for legally recording the new deed and mortgage are usually paid by the buyer. The are set by state and/or local governments.
Survey.
This if often required by the lender and paid by the buyer. You might be able to save a little money by updating the previous survey made when the seller bought the property.
Termite Inspection.
In some states where it is required by the lender, local custom or law, this bill is usually paid to those rendering that service in advance of the closing, but you must show proof that the service has been provided.
Broker's commission.
If you have made an agreement with a buyer's broker, his or her fee will be due at the closing. One expense you do not have to worry about is any other realty commission. Sellers pay the agent who sells their home.
If this article did not answer all of your questions about this topic, please call us and a Knecht representative will be happy to explain all the details and legalities that are involved with selling or buying real estate property.
920-921-0396
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