Prepare for Closing Costs when Buying a Home
By Sadiya Anjum
The negotiation went fine, the seller and you have both agreed, the appraisal got an all clear and your finance came through; now you are keenly waiting for closing day. But when you see the closing costs, you see costs you never anticipated and you run short of cash. Sometimes buyers are taken aback by costs that are way above the Good Faith Estimate (GFE). So it is always a smart move to know every single possible cost that may show up on closing day and to put aside some extra amount for the unforeseen payments.
Closing costs are basically fees, taxes and other payments that are required before money or property changes hands. It may amount to anywhere between 3% and 6% of the total loan amount. The costs depend on the area you live in and the lender you have chosen. Each area has different aspects that need to be covered before you buy a property.
As for your mortgage, before you get approved the lender will give you an estimate (GFE) of closing costs. Good Faith Estimate provided by your lender indicates what you can expect to pay on closing day. This amount is exclusive of the main portion of the loan. It includes points, taxes, insurance etc. Closing costs differ with each lender and hence it pays to shop around to get a better idea of the best offer available. But since this is just an estimate, you can easily expect to shell out extra last minute. Keep this in mind when you budget for closing costs.
Closing costs are lender related (associated with your mortgage) and non-related to lender (escrow fees, home inspection etc.). Closing costs can also be classified as non-recurring and recurring. Non-recurring costs are fees that are required to be paid just once but recurring fees includes costs that you have to continue to pay over a period of time.
Here is a basic list of items that will be included in closing costs. Some of these items may not be applicable to you and some that are applicable may not have been included.
Hence a comprehensive list of items that are included in closing costs should be obtained by an agent familiar with your area and/ or your lender.
Notary Fees State Recording Fees
Survey Fee Pest Inspection
Home Inspection Home Warranty
Courier Fee Homeowner’s Association Transfer Fee
Loan Origination Fee Appraisal Fee
Credit Report fee Lender’s Inspection Fee
Mortgage Broker Fee Tax Service Fee
Flood Certification Fee Property taxes
Legal Fees Document Preparation
Underwriting Fee Appraisal Review Fee
Wire Transfer Fee Homeowner’s Insurance
Up Front Mortgage Insurance Premium Mortgage Insurance
Some of these items may be a nominal amount and some can run from a couple of hundred to thousand dollars. One or two days before closing, HUD-1 Statement will be sent to you. This is basically a settlement statement which will provide a closer estimate of what exactly you will be required to pay. But get your finances arranged in advance so the whole process can go smoothly and you can finally be the proud owner of your new home.
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