No one wants to be surprised with fees they weren’t expecting at closing. A reputable realtor will explain that a buyer usually pays two and a half percent the price of the home for closing costs. This figure can be as high as three percent or more in certain circumstances.
When submitting a loan application, ask the lender for a Good Faith Estimate (GFE). Trustworthy lenders normally give you a copy at the time of application. Regulations require lenders to disclose approximate closing costs and the Annual Percentage Rate within three days of the application. Loan applications vary and small changes can occur after the initial application.
Financing Options Determine Closing Costs
Lenders offer several options for fees. One option is a “No Cost†loan. These loans come at a higher interest rate than traditional loans. Another option is to buy your interest rate down. Buying a point is one percent of the cost of the loan and typically equals a .125 lower interest rate. Determine which is your priority, lowering the long-term cost is the priority many buyers. First-time buyers are usually concerned about beginning costs.
Checklist of Average Closing Costs
Typically, a lender will charge an origination fee that can be one percent and a processing fee. Processing fees start at $350 and go up from there. If you are working with a mortgage broker, there may be bank fees as well, including an underwriting fee and a doc preparation fee. These fees will generally total between $600 and $900. There are also title fees, inspection fees and an appraisal fee. Title fees will vary depending on loan amount. Appraisal fees run approximately $350 or more. Since all of these fees can vary so much, the GFE is vital.
Escrow Covers Payments for Taxes, Prepaid Interest and Insurance
To secure financing for your new home, you must purchase homeowners insurance. The first year’s premium will be collected at closing. The lender may require one or two months’ interest at closing as well. The later in the month you close on your home, the less interest you pay at closing, as you will likely be skipping a month before the first mortgage payment is due. Depending upon the time of year you purchase what property taxes have already been paid for the year, you will pay four to nine months of property tax at closing.
Again, refer to your Good Faith Estimate in preparing for the costs involved in closing on you new home.
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