To close the deal on your dream home, you not only bring your down payment to the table, but you also bring your closing costs to be paid to your lender. Many times homebuyers underestimate the number of closing expenses while others are unaware that these costs can be reduced.
Therefore, based on the premise that it might be a bit tedious figuring out your closing costs, this article will give you a detailed approach to how to determine your closing fee and how to beat the price down.
Closing Cost Defined
Closing costs are fees such as home appraisal and title searches, charged by the lender for the processing of your loan. And they are determined by the type of loan and where you live.
For most home loans, the closing cost is paid at the time of closing the meeting along with the down payment.
Price Variation of a Closing Cost
The average cost of typical closing expenses ranges from 3% to 6% of the home’s purchase price and if you know how to go about it, you may be able to convince the seller to pay all or part of the closing cost.
Who is Responsible for the Closing Costs?
Usually, the closing fees are shared by both purchasers and sellers. But oftentimes the buyer is normally responsible for the major bulk of the charges but could deploy a technique known as the seller concessions.
Seller concessions occur when you convince the seller to share part of the closing fee, especially if you might not be able to meet up with the money you will need to close the deal.
However, the amount that sellers can offer toward closing costs is limited, due to the restrictions to a particular percentage of the loan value, which varies depending on the loan type, occupancy, and down payment.
Probable Closing Costs
Closing costs for each transaction vary by the buyer, some fees are stipulated by the government, others by lenders, and others depend on the circumstances such as location, your mortgage lender, and the type of loan you are borrowing.
The following are the types of closing expenses you could come across in the closing disclosure document that will be presented to you by your lender.
Lenders charge an application fee for processing your loan, and this fee could be as high as $500 depending on your lender. Although it could be a one-time fee or be used as a deposit that may be refunded.
The mortgage company employs the services of a private appraisal company to assess the value of your home and its safety if you decide to move in right away. Appraisals are crucial because they determine how much money you may borrow for a property from a lender and also ensure that you are not spending too much for a home. The average cost of an appraisal is $300 to $600.
To make everything legally binding, you must pay a real estate attorney to handle the closing and title transfer documents for your home, the sum which is determined by state and local laws.
The escrow business or attorney that performs your closing meeting receives your closing fee. Closing in some places requires the signature of an attorney and so depending on your state and whether or not an attorney is required to attend your closing, the charges will vary.
Shipping mortgage documents cost at least $30 and this is covered by the courier cost charged by your lender.
Fees for Credit Reporting
This $25 expense is used to get a look at your credit report and score.
Points for Savings
Lenders will let you pay money upfront to lower your interest rate by purchasing discount points, in other words, you are essentially buying your rate to save interest over the life of the loan beforehand. One percent of your loan amount is equal to one discount point.
Certification for Flooding
You may be required to pay a fee of $15 to $25 for a flood certification if your home is located in or near a flood plain, which will go to the Federal Emergency Management Agency, to plan for emergencies and target high-risk areas. Note that buying a home in a flood zone makes it mandatory to pay this fee.
Insurance for Homeowners
Homeowners insurance offers payout in event of mishaps and your house gets damaged. Mortgage lenders use this as a prerequisite for borrowers to have at least a specific level of insurance coverage if something happens to the house.
Furthermore, you can also purchase coverage for your home’s belongings as well as liability coverage if someone gets injured on your property.
The Cost of Processing and Underwriting Your Loan
This charge is paid to your lender in exchange for underwriting and preparing your loan documents. Origination fees typically amount to roughly 1% of the loan’s total value. This will appear in the Origination Charges section of your Loan Estimate alongside mortgage discount points.
Fees for Title Lookup
Searches for claims on the property you want to acquire are done through title searches. This search is important because it reveals liens, bankruptcies, and unpaid back taxes that indicate that the seller does not own the property they are selling.
In most places, the title search is performed by a title insurance company, however, regulations in other states require real estate attorneys to conduct title searches. Nevertheless, your title search may cost between $200 and $400.
Fee for Locking in a Rate
Between preapproval and closing, certain lenders may charge you a fee to lock in your interest rate. When you lock in your rate, you’ll typically pay 0.25 percent to 0.50 percent of the loan value. This service is provided for free by several lenders.
Closing Costs and How to Cut Them
The closing cost has no fixed rate, so you can haggle with your seller to get a reduction in the cost.
Shop for lenders
Don’t go for the first lender that you come in contact with. Feel free to browse to ensure that you are getting the best rates possible from the lender you choose. Inquire about the types of fees charged by a few different loan providers and choose a lender with low fees and a competitive interest rate.
Solicit a Donation From the Seller
In a buyer’s market, your seller may be willing to assist you with closing fees. For you and the vendor, this is a win-win situation in that you save money at the closing table, and your seller saves time selling their home.