A Guide to Closing Costs
- By Sam Khalil
- Published 11/15/2011
- Real Estate
- Unrated
During real estate transactions one area that is confusing to anyone outside the real estate profession is the term "closing costs". It is important to know what they are and how they work, as the closing costs can actually determine the success of the deal itself.
Closing costs fall into two groups. There are costs that are paid to government entities, state and local, and there are costs that result from obtaining the mortgage.
Amounts paid to the government entities are pretty clear. They include city, county and state property taxes prorated to the sale date of the property, and fees associated with recording the transfer of the property.
The second group of costs is associated with obtaining the mortgage. These include the lender's application fee to process the loan, and "points", whether discount or origination points. Discount points affect the interest rate the borrower pays. Paying additional points to the lender results in a lower interest rate; with fewer points a higher interest rate applies. Origination points are paid to the lender as a fee for evaluating and preparing the loan. Both sets of points are expressed as a percent of the total amou
nt of the loan. "Two points" would equal two percent of the loan.
Other closing costs are appraisal fees, usually a few hundred dollars paid to an appraiser to document that the home or property is worth the amount the lender is asked to lend. Credit fees are charged by the lender to research the credit history of the borrower.
A title search and insurance is important as it details the historical records of the property. The title search examines past deeds, court records, ownership, overdue or unpaid taxes or liens against the property that could have an adverse effect on the new owner.
Lesser amounts are part of the closing costs such as survey fees, flood certification, interim interest accrued from the closing date to the end of the month and attorneys' fees, for the lender and buyer.
The closing costs are listed in the Good Faith Estimate provided by the lender. The borrower is entitled to see the HUD-1 form which is the final detailed listing of the closing costs prior to the actual signing. Closing costs should be examined by the buyer and questioned if any appear to be out of line. They also can be areas for negotiation between the buyer and seller of the property as there are different tax ramifications for both the buyer and seller.
Closing costs fall into two groups. There are costs that are paid to government entities, state and local, and there are costs that result from obtaining the mortgage.
Amounts paid to the government entities are pretty clear. They include city, county and state property taxes prorated to the sale date of the property, and fees associated with recording the transfer of the property.
The second group of costs is associated with obtaining the mortgage. These include the lender's application fee to process the loan, and "points", whether discount or origination points. Discount points affect the interest rate the borrower pays. Paying additional points to the lender results in a lower interest rate; with fewer points a higher interest rate applies. Origination points are paid to the lender as a fee for evaluating and preparing the loan. Both sets of points are expressed as a percent of the total amou
Other closing costs are appraisal fees, usually a few hundred dollars paid to an appraiser to document that the home or property is worth the amount the lender is asked to lend. Credit fees are charged by the lender to research the credit history of the borrower.
A title search and insurance is important as it details the historical records of the property. The title search examines past deeds, court records, ownership, overdue or unpaid taxes or liens against the property that could have an adverse effect on the new owner.
Lesser amounts are part of the closing costs such as survey fees, flood certification, interim interest accrued from the closing date to the end of the month and attorneys' fees, for the lender and buyer.
The closing costs are listed in the Good Faith Estimate provided by the lender. The borrower is entitled to see the HUD-1 form which is the final detailed listing of the closing costs prior to the actual signing. Closing costs should be examined by the buyer and questioned if any appear to be out of line. They also can be areas for negotiation between the buyer and seller of the property as there are different tax ramifications for both the buyer and seller.
Sam Khalil
First Alliance Home Mortgage is New Jersey's premier Mortgage Banker/Broker. Their experienced Loan Officers provide clients with the latest information on special government programs, equity acceleration, and how to choose the type of loan that best suits their needs.http://www.fahmloans.com
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