Sometimes as buyers we forget or not aware that not only do you need a down payment to purchase a home, but also $$ for closing costs. Typically closing costs can range from 1-3% of the purchase price. Can the cost be offset somehow? Yes, it can. Depending how competitive the market is and what you are willing to offer, closing cost credit can be written in the contract. Also the lender can offer credit, keep in mind that means getting a slightly higher interest rate.
Below is the breakdown.
Non-Recurring Closing Costs Associated with the Lender
- Credit Report
- Flood certification fee: The certification verifies whether your property is in a federally designated flood zone.
- Flood monitoring: Monitors remapping of flood zones.
- Lender’s Inspection fee: for newly constructed property to verify that construction is complete with carpeting and flooring installed.
- Loan discount: AKA points, each point equal to 1 percent of the loan amount.
- Loan origination fee
- Mortgage broker fee
- Tax service fee: For monitoring your payment of property tax.
Other Lender Fees
- Administration fee
- Appraisal review fee: Usually done on higher-valued properties.
- Document preparation
- Underwriting fee
- Warehousing fee: The cost of a “warehouse” line of credit.
- Wire transfer fee: This is the cost to transfer funds from one account to another.
Items required to be paid in advance
- Homeowner’s insurance: You are usually required to pay the entire first year’s insurance at closing.
- Mortgage insurance: Some first-time homebuyer programs still require the first year’s mortgage insurance to be paid in advance.
- Pre-paid interest: The interest that accumulates between closing day and the first payment due date.
- Up front mortgage insurance premium
- VA funding fee: This is paid to the Veterans Administration for guaranteeing your loan.
Reserves Deposited with Lender
- Homeowners insurance impounds: You will need to deposit 2-12 months’ worth of premiums into the impound account to start it up.
- Mortgage insurance impounds: Usually two months’ worth of premiums.
- Property tax impounds 2-6 months
Non-recurring closing costs
- Closing/escrow/settlement fee (In Ca, Typically split between the seller and buyer)
- Courier fee: This is the charge for sending documents back and forth between lender and borrower.
- Homeowner’s association transfer fee
- Loan tie-in fee: Usually charged by the closing agent, this is for services they provide in dealing with the lender.
- Notary fees
- Pest Control Inspection (Typically in Ca, Seller Cost)
- Home Warranty (Typically in Ca, Seller Cost)
- Recording fees: To record documents with county recorder.
- Sub-escrow fee: The title insurance company charges this for dealing with the closing agent.
- Title insurance: You pay this to make sure you have clear title to the property. (Typically in Ca, Seller Cost)
To recap, make sure you go over closing costs with the real estate professional and your lender.