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Closing Costs are Very Important
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Buying a Home - Closing Costs Checklist
The following checklist will help you understand
all the costs related to your closing.
These costs include both mortgage-related costs and government-imposed
costs.
Seller
versus Buyer Closing Costs
Closing costs,
and who pays them, varies by location and is open for negotiation
between the buyer and seller. It is possible to have a sales agreement
in which either the buyer or seller pays all the closing costs.
Or, to lower your costs, you may have the seller agree to pay
just certain fees. For example, you could negotiate with the seller
to pay for the title search service, the county and state recording
fees and tax, and the closing agent’s document preparation
fees. The agreement that you and the seller reach must be specified
in the sales contract.
The success of negotiations depends on such factors as how eager
the seller is to sell and you are to buy, the quality of the home
and how long it has been on the market, and whether other potential
buyers are interested.
Mortgage
Related Closing Costs
Depending on your situation, the following costs for getting a mortgage
must be paid at or by closing. These costs cover items that were
part of the loan application process:
Loan Origination
Fee
The loan origination fee covers the administrative costs of processing
the loan. It may be expressed as a percentage of the loan (for example,
1 percent of the mortgage amount).
Loan Discount
Points
Loan discount points are the dollar amount paid to a lender for
making a loan. Each point equals 1 percent of the mortgage amount.
For example, if you take out a $100,000 loan, one point equals $1,000.
The more points you are willing and able to pay at closing, the
lower your interest rate should be.
Appraisal Fee
The appraisal fee pays for the property appraisal, which the lender
uses to determine whether the value of the property is sufficient
to secure the loan should you default on the loan. This is usually
paid by you when you apply for the mortgage and may appear on the
settlement form as “POC,” or “paid outside closing.”
Credit Report Fee
The credit report
fee covers the cost of the credit report, which the lender uses
to determine your creditworthiness. You may have paid this fee when
you applied for the mortgage, so it may appear on the settlement
form as POC.
Prepaid Interest
Interest is the fee you are charged for borrowing money from your
lender. You will probably have to pay the interest on the mortgage
from the date of settlement to the beginning of the period covered
by the first monthly mortgage payment. For example, suppose you
settle on February 10. Your first monthly payment begins to accrue
on March 1 and will be payable at the beginning of April. At closing
you may be required to prepay the interest for the period from February
10 through the end of February. This means that if you settle later
in the month, your closing costs will be less than if you settle
early in the month.
Escrow Accounts
Escrow accounts (or reserves) will be required if your lender will
be paying your homeowner’s insurance and property taxes. Your
lender sets up the escrow account by adding the cost of the insurance
policy and taxes to your monthly mortgage payments. That portion
of your payments is kept in reserve until the bills are due. Each
year, the bills will be sent directly to your lender, who will make
the payment for you. Escrow accounts are typically required if you
make a down payment of less than 20 percent.
Government-Imposed
Closing Costs
Most state and local governments impose property taxes,
recording
fees, and transfer
taxes.
Property Taxes
Property taxes for the real estate you own must be paid annually
to the local government. Property taxes are the most common expense
to be prorated between the buyer and seller. This process is referred
to as an “adjustment.” (Other typical adjustments include
annual homeowners’ association or condominium fees and unpaid
water or utility bills.) Your closing agent will split the taxes
so that you take responsibility for them at closing. If the seller
already has paid taxes beyond that date, you reimburse the seller.
Or, if taxes for the current period have not yet been paid, the
amount owed is deducted from your settlement payment. Your lender
may include property taxes in your monthly mortgage payments and
put them in an escrow
account for you.
Recording
Fees and Transfer Taxes
Recording fees and transfer taxes are charged by most states for
recording the purchase documents and transferring ownership of the
property. Your closing agent will usually calculate these costs
as a percentage of the sales price. In some localities it is customary
that the seller pay one fee and the buyer pay another. Your real
estate sales professional can advise you about this.
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