What Are Closing Costs?
You've come far in the home buying process. You prequalified for a loan, shopped through thousands of listings, made an offer on something you like, and you've signed a purchase agreement. Next up, you'll be closing on your new home.
Also called the settlement, the closing is the process of passing ownership of property from seller to buyer. And it can be bewildering. As a buyer, you will sign what seems like endless piles of documents and will have to present a sizeable payment for the down payment and various closing costs. It's a good idea to be familiar with the closing costs you'll be paying.
Closing costs vary from one buyer to the next. According to ClosingCorp, Florida home buyers pay an average 2.35% of their home's purchase price, or about $3,585 in closing costs on a home that's in the $200,000-$300,000 range.
Here are some of the closing costs you may be asked to pay.
This fee pays for the appraisal of the property. You may already have paid this fee at the beginning of your loan application process.
Credit Report Fee:
This fee covers the cost of the credit report requested by the lender. This too may already have been paid when you applied for your loan.
Loan Origination Fee:
This fee covers the lender's loan-processing costs. The fee is typically one percent of the total mortgage.
You will pay this one-time charge if you have chosen to pay points to lower your interest rate. Each point you purchase equals one percent of the total loan.
Title Insurance Fees:
These fees generally include costs for the title search, title examination, title insurance, document preparation and other miscellaneous title fees.
If you buy a home with a low down payment, a lender usually requires that you pay a fee for mortgage insurance. This fee protects the lender against loss due to foreclosure. Once a new owner has 20 percent equity in their home, however, he or she can normally apply to eliminate this insurance.
Prepaid Interest Fee:
This fee covers the interest payment from the date you purchases the home to the date of your first mortgage payment. Generally, if you buy a home early in the month, the prepaid interest fee will be substantially higher than if you buy it towards the end of the month.
In locations where escrow accounts are common, a mortgage lender will usually start an account that holds funds for future annual property taxes and home insurance. At least one year advance plus two months worth of homeowner's insurance premium will be collected. In addition, taxes equal approximately to two months in excess of the number of months that have elapsed in the year are paid at closing. (If six months have passed, eight months of taxes will be collected.)
Recording Fees and transfer taxes:
This expense is charged by most states for recording the purchase documents and transferring ownership of the property.