Elite Orlando Homes - Closing Costs Info
Closing Costs in General - (What to expect in closing costs)
Buyers Closing Costs
The bundle of fees associated with the buying or selling of a home are called closing costs. Certain fees are automatically assigned to either the buyer or the seller; other costs are either negotiable or dictated by local custom. Buyer closing costs When a buyer applies for a loan, lenders are required to provide them with a good-faith estimate of their closing costs. The fees vary according to several factors, including the type of loan they applied for and the terms of the purchase agreement. Likewise, some of the closing costs, especially those associated with the loan application, are actually paid in advance. Some typical buyer closing costs include:
- The down payment
- Loan fees (points, application fee, credit report)
- Prepaid interest
- Inspection fees
- Mortgage insurance
- Hazard insurance
- Title insurance
- Documentary stamps on the note
Seller closing costs
If the seller has not yet paid for the house in full, the seller's most important closing cost is satisfying the remaining balance of their loan. Before the date of closing, the escrow officer will contact the seller's lender to verify the amount needed to close out the loan. Then, along with any other fees, the original loan will be paid for at the closing before the seller receives any proceeds from the sale. Other seller closing costs can include:
- Broker's commission
- Transfer taxes
- Documentary Stamps on the Deed
- Title insurance
- Property taxes (prorated)
- Negotiating Closing Costs
In addition to the sales price, buyers and sellers frequently include closing costs in their negotiations. This can be for both major and minor fees. For example, if a buyer is particularly nervous about the condition of the plumbing, the seller may agree to pay for the house inspection.
Likewise, a buyer may want to save on up-front expenditures, and so agree to pay the seller's full asking price in return for the seller paying all the allowable closing costs. There's no right or wrong way to negotiate closing costs; just be sure all the terms are written down on the purchase agreement.
Prorations At the closing, certain costs are often prorated (or distributed) between buyer and seller. The most common prorations are for property taxes. This is because property taxes are typically paid at the end of the year for which they were assessed.
Thus, if a house is sold in June, the sellers will have lived in the house for half the year, but the bill for the taxes won't come due until the following year! To make this situation more equitable, the taxes are prorated. In this example, the sellers will credit the buyers for half the taxes at closing.
Many are taking advantage of this year's low mortgage rates to purchase a home. Pent up with excitement, many families, who have scrimped and saved for a down-payment, jump for joy when the mortgage lender finally approves their application. But, they should realize that there's a whole new set of expenses that must be covered before actually closing on the sale.
New homeowners are often taken aback by up-front closing costs such as mortgage and title insurance, attorney fees, recording fees and loan points, which can run into the thousands of dollars. But there is no need to be afraid of these charges. With a little background on their purpose and shrewd financial foresight, closings can be a breeze.
A lender's charge for processing the loan can be determined at the beginning of your buying process. Referred to as “points,” these charges are expressed as a percentage of the total loan. For instance, three points are equal to 3 percent of the borrowed amount. “Points” can also become a tool for negotiation with the lender and seller. In a buyer's market, home sellers will often agree to pay mortgage fees in order to close a deal.
Title insurance can be a substantial expense. The policy covers any financial set-back caused by unforeseen defects in the purchased property and home. The one-time title fee, including search and examination, averages around $430 for a $100,000 home, but it's recommended that you check with a local title insurance agent ahead of time to effectively determine what you'll owe before closing.
Additional costs, such as attorney charges, and recording, transfer and inspection fees, can also be predicated ahead of time by the buyer. Most often pest and survey inspections, although included in the official closing statement, are conducted and paid for long before the closing date. However, buyers should consider them as additional up-front costs.
Some closing costs, such as “points,” are fully tax deductible that tax year if you show proof of a separate lump sum payment. They are not deductible in a few cases when the loan is the result of re-financing rather than a home purchase. Application, appraisal, documentation and broker fees can not be deducted.
Some states require payment of property taxes at closing. In some instances, buyers and sellers are asked to put money into an escrow account that will cover any past and future tax obligations. Be sure to check with an attorney or real estate agent before the closing to determine your property tax commitments.
Also, be prepared to pay any assessments if buying a condominium or into an association-governed property. Fees for credit reports, notary public seals and assumptions, which includes the processing of official documents, may also arise.
Knowing what total closing costs will be before starting your home search can help you better understand what price range is right for you. In the end, the process of closing on a mortgage will be easier than you think, leaving more time to plan for your new home.
Arm yourself with knowledge
Consumers can use the information to bolster their negotiating position. After all, while lenders hate to admit it, getting a mortgage is similar to buying a car. Borrowers who know what their mortgages “should” cost before they visit their lenders' offices have a better chance of getting the best deals.
Education is key
Comparing one mortgage to another isn't as easy as just comparing rates. Borrowers need to shop all three major components of a loan's price -- rates, points AND fees -- before selecting lenders.
Why? Mortgage companies often do the same thing car dealers do to make money off consumers. Just as a dealership can charge a lower finance rate but jack up the price of the car, a mortgage lender can charge a slightly lower-than-average interest rate or fewer points, but make it up by tacking on so-called “junk” fees. Forget about fees and you may end up subsidizing the loan officer's shiny new Camaro rather than getting the best deal on your loan. A bank has a cost of getting a loan done and they're going to make that cost up somewhere. If you find that a bank is very ready to negotiate fees, you may also find the bank is charging a slightly higher interest rate.
A maze of mortgage costs and fees
Comparing closing costs isn't as easy as it sounds. Some lenders give fees a wide variety of names in an effort to confuse consumers. One might advertise that it doesn't charge an “application”fee up front, for example. But it makes that up by charging a “commitment” fee or “doc prep” fee at closing.
Other companies try to look cheaper by charging an all-inclusive “processing” fee. But they may charge $900, whereas a lender that itemizes might only charge $200 as an “application” fee, plus $300 as a “funding fee” and $250 as a “review fee” -- $750 total.
Lender/broker fees include charges for document preparation, underwriting and origination, while third-party fees include charges for title searches, flood certifications, appraisals and the like. Government fees include recording taxes and other charges assessed by local and state agencies.
Borrowers will find information on the first two categories the most useful. Lender/broker fee information is helpful because “doc prep” fees and other similar costs are negotiable. Borrowers who know what lenders are charging, on average, to process loans can determine if they're being overcharged and, if so, demand lower prices.
Different companies have different names for different fees, but really what they are all trying to cover is the costs for processing, underwriting and making a loan. If you add them all up, you can compare one lender to another.
Third-party provider data, meanwhile, can help because some lenders let borrowers choose their own title insurers, appraisers and such. Consumers willing to invest the time and effort may find they can save money by choosing their own closing-service providers.
Not all lenders will play ball, though, and those who do usually have “approved provider” lists. A customer would have to make sure an appraiser is on the list, for instance, before paying $300 for the person's services.
- It's up to the lender as far as determining the value that they should be using to make their loan. You could go down the block and find Joe the Appraiser and he'll do it for $100, but Joe doesn't know anything. Lenders have approved appraisers that we will accept appraisals from. Lenders are not doing appraisals for the buyer. They not doing it for the seller. They are doing it for them. They need to make sure the're protected.
- Final Information about charges that fall into the government category and the fourth closing-cost group -- escrow/interest fees (otherwise known as “prepaid items” or “prepaid amounts”) -- isn't as helpful.
State laws, the time of month the loan closes and the due date of taxes and insurance, among other things, determine those charges. That means lenders and private-market, third-party providers have no say in the matter and can't be convinced to lower those prices.
The hard truth No matter what, consumers have to be realistic. Lenders, appraisers, credit reporting agencies and other parties to a mortgage transaction have to make a certain amount of money to cover their cost of doing business and turn a profit. Some fees simply can't be avoided, and customers who won't accept that may be told to take a hike.
All lenders have these fees
- They're not necessarily profit centers for these lenders, they're just ways for lenders to cover the cost of these processes. You can only go so far and there's a point at which somebody's not willing to do a loan.
Still, consumer experts say borrowers shouldn't be afraid to ask for reasonable closing cost breaks. And no matter what, don't accept a lender's “that's just the way it is” answer when asking why your good faith estimate shows $5,000 in assorted fees for a $100,000 mortgage.
Question all the fees. Ask about it: 'Is it required? What is it? We're talking big bucks, and it's easy for someone to slip in $300 for this or $400 for that.