| Anticipate
total costs
At the start of the home buying process and particularly
at closing (the meeting where you'll sign the paperwork
and pay all the expenses to take ownership of your new home),
you'll find yourself paying various fees and other charges.
Some of these costs are negotiable with the seller. Your
real estate agent can help you negotiate these in the sales
contract.
This section discusses the costs you most likely will be
responsible for so you can have the funds ready.
Lender-related costs (click)
Third-party fees
Pre-paid costs
Lender-related
costs
The cost of a loan is more than rates and points. Prior
to selecting a lender for a specific loan, you should ask
what other fees there will be in addition to the points.
Within 3 days of application, you'll be mailed what's called
a Good Faith Estimate of what the loan will cost. This is
just what the name says. It's an estimate. And, in "good
faith," it's as accurate as possible given the information
available at the start of the loan process.
You'll receive an initial Truth-in-Lending disclosure which
includes the APR and other financial terms within 3 days
of application. A HUD-1 Settlement Statement will be issued
to you shortly prior to closing that provides you with the
full disclosure of closing costs. It establishes the total
funds you must bring to the closing meeting and itemizes
how and to whom the funds are to be disbursed. ↑
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| Loan
Origination Fee |
Covers
the lender's administrative costs of processing the
loan. It may be expressed as a percentage of the loan
(for example, 1% of the home loan amount). This fee
is customary on a government loan. |
Loan
Discount Points
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Top
|
Amounts
paid to a lender at closing in exchange for a discount
of the interest rate on your loan. Each point you
pay equals 1% of the home loan amount, so for a $100,000
loan, 1 point equals $1,000. In many cases, discount
points are tax-deductible (ask your tax advisor).
For complete details on how deductibility of home
loan interest and other expenses will affect your
specific tax situation, ask your tax advisor. Or review
a copy of IRS Publication 936. |
|
Application
Processing
Underwriting
Fee |
Fees
charged by the lender to cover the cost of completing
the application, processing the loan, evaluating the
risks involved, and establishing suitable terms and
conditions. |
|
Document
Preparation Fee |
A
fee charged by the lender for preparing all the documents
required for the closing of a loan. |
Pre-paid
Costs
Pre-paid
costs
When you purchase a home, there will be some necessary charges
to cover things like the interest on your loan until your
first payment is due. These are called "pre-paids" and include
the following items.
| Pre-paid
Interest |
When
you buy a home, you typically don't make the first
payment until the beginning of the second full month
after your loan closes. For example, if you close
on January 28, your first payment may not be due until
March 1. However, you pay at closing for the interest
on your new loan from the day of closing until February
1. |
| Escrow
Accounts |
Escrow
or "impound" accounts (also called reserves) are required
if your lender will be paying your homeowner's insurance
and property taxes. Your lender sets up the escrow
account by collecting 2 to 4 months worth of the annual
cost of your homeowner's insurance and 2 to 4 months
worth of your yearly property taxes and any other
items covered by your escrow account. At closing,
you'll be required to pay these amounts to fund the
account. |
| |
Property
taxes for real estate must be paid quarterly, semi-annually,
or annually to the local government. Property taxes
are the most common expense prorated (shared or split)
between the buyer and seller. Your closing agent will
typically determine your portion of the taxes from
the date of closing. This varies by state. |
|
Third
Party Fees
Third-party
fees are collected by your lender for services provided
by outside parties, such as an appraiser. All lenders typically
require some of these fees. Many of the services are regulated
by various governmental organizations.
| Appraisal
Fee |
Payment
for an opinion or estimate of the value of a property.
A report is prepared by a professional appraiser to
explain the determination of the fair market value.
This fee is often paid for at the time of application
for a home loan. |
| Credit
Report Fee |
Covers
the cost of the credit report used to help determine
your creditworthiness. These reports are obtained
from credit agencies and evaluate your capacity to
pay debts or history of paying debts. This fee is
often paid for at the time of application for a home
loan. |
| |
Payment
for an insurance policy that protects the lender against
loss should you fail to make payments. This type of
insurance is typically required on loans with less
than a 20% down payment. These costs may be paid upfront,
included in your monthly payment, or included in your
interest rate |
| Tax
Service |
Fee
covering the cost of having a tax service agency monitor
the payment of your property taxes. If you elect to
pay taxes yourself, the agency monitors the tax rolls
for the life of the loan and informs the lender if
the taxes ever become delinquent so the lender can
take action to protect its lien position. |
| Flood
Check
Fee |
Covers
the Federal Emergency Management Agency's (FEMA) review
to determine if a home is located in a flood zone
and if flood insurance is required. |
| Closing
Escrow
Fee |
Pays
for the services of the closing or escrow agent, or
the attorney that handles all the financial transfers
and payments associated with the closing of your refinance
loan. |
|
Title
Search
Fee |
Pays
for a written history of the title transactions involving
the parcel of land where a home is located, including
everything recorded in the public record. The search
checks for liens, unpaid claims, restrictions or other
problems. |
| |
The
premium for title insurance, which protects you and
the lender in case of an unresolved claim affecting
the marketable title to the property. There are two
policies issued, an owner's policy for you and a lender's
policy for the lender. Special title binders and endorsements
may also be included in this charge. |
Homeowner
Insurance
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The
premium for a form of insurance policy required to
protect against certain risks, such as fires or storms.
A regular payment for this insurance can be included
in your monthly home loan payment through an escrow
or impound account. The cost of the first year's policy
is generally paid at closing. |
| City/County
State Tax
Stamp |
Some
states have taxes related to the real estate transaction.
These taxes range from a few dollars to 1 3/4 percent
of the loan amount depending on the jurisdiction.
Current states charging mortgage tax include Alabama,
Florida, Georgia, Hawaii, Kansas, Maryland, Minnesota,
New York, Oklahoma, Tennessee and Virginia. |
| Recording
Fees &
Transfer
Taxes |
Recording
fees and transfer taxes are charged by most states
and localities for recording the purchase documents
and any liens in the public record and transferring
ownership of the property. |
| Notary
Fee |
Covers
the cost of having a licensed notary public certify
the signing of your closing documents and signature |
| |
A
fee for the certification of the location of the property,
its dimensions, its boundaries, its contour, and the
location and dimensions of any improvements. In some
cases, the lender can use the original survey done
for the purchase of the property. |
| Inspection
Fees |
Charges
for the various inspections that may be required for
the sale, such as property, pest and septic tank inspections. |
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