If you are in the market to purchase a home and you intend to finance the purchase with a mortgage, it’s important to be aware of the fact that you will be responsible for paying closing costs when the mortgage “closes” (e.g. when the sale is finalized). Many people do not factor closing cost fees into the total amount they will have to pay. Some people opt for paying closing costs out-of-pocket at the time of closing, whereas others choose to add their closing costs into their mortgage.
Closing costs are fees that you must pay in addition to your down payment. There are some scenarios in which the seller of the property is willing to pay either all or part of a buyer’s closing costs. Traditionally, however, buyers are responsible for paying these costs on their own.
The total amount of closing costs varies from property to property, and from loan to loan. Also, various jurisdictions across the United States have different requirements. However, typical items built into closing costs include: the cost of the property appraisal, title fees, recording fees, a charge for your credit report, underwriting fees, escrow deposits, and more.
Closing costs are rarely just a few hundred dollars. In fact the total amount you may pay in closing costs can be up to 5 percent of the price of your new property – which means these fees can run into the thousands. Some of the items included in closing costs are non-negotiable – such as the amount of escrow you will have to pay. But other items, such as administrative fees charged by the lender, can be flexible if they are unusually high.
You will be provided with a statement called a “Good Faith Estimate” after you select a specific property and apply for a loan. The Good Faith Estimate will list each and every fee that is included in your closing costs. It’s essential that you review this estimate so you know exactly what you will be required to pay in order to close the loan.
Once you know the exact dollar amount of your closing costs, you will have the opportunity to decide whether to pay the closing costs out-of-pocket or to add the closing costs into the total value of your loan. In some cases, a lender may offer you a loan that is labeled as “no-closing cost.” With such loans, you do not have to pay closing cost fees. However, these types of loans may require you to pay a higher interest rate – which may end up costing you more in the long run.
For a full explanation of closing costs, give The Home Loan Arranger a call today at 1-877-938-7501.