Know The Numbers
Be prepared for the costs and funds needed to purchase a home. In addition to your down payment, at closing you may need to contribute funds for one-time closing costs as well as pre-paid items such as mortgage interest and funding escrow accounts for property taxes and homeowner’s insurance.
One-time closing costs
Credit Reporting
The lender will order a credit report from the three credit agencies to see your credit scores and review your outstanding loans and repayment history. This might also include credit monitoring to alert the lender if you open up new credit during the underwriting process so any new liabilities can be accounted for. Credit Reports can cost between $100 and $350 for each borrower.
Appraisal
A residential mortgage appraisal is a professional, unbiased report that estimates a home’s market value, required by a lender before approving a mortgage. This is done by a licensed appraiser and it ensures that the collateral is worth the amount required for the lender’s mortgage amount. The cost can run between $400 and $1,000 depending upon the type of appraisal required.
Application / Processing Fee
Lenders charge to cover the work to process, underwrite, and close your loan. This cost is typically between $1,500 and $2,000.
Flood Certification
Your lender will order a flood certification report to determine if your property is located in a federally designated flood zone. Lenders will require buyers to purchase flood insurance if the property is found to be in a flood zone. This cost can range between $5 and $25.
Attorney Fee
In certain states buyers and sellers will use an attorney to handle a real estate transaction and advocate on their behalf. Buyer’s side attorney fees can range from less than $500 to more than $1,000.
Title Insurance
When you buy a home, a title company searches public records to make sure the seller truly owns the property and has the right to sell it. The search also confirms that there are no other liens on the property. Title insurance protects the lender from financial loss if there are problems with the property’s ownership history.
Recording Fees
The property’s municipality or county charges a fee to have documents recorded in the public record. Upon your closing, your Mortgage and Deed will be recorded.
Transfer Stamps
A real estate transfer stamp or transfer tax is a fee assessed by a state, county, or local government when property is sold or otherwise transferred. The buyer, seller, or both parties may be responsible for paying a stamp or tax, depending on local laws.
Pre-Paid Interest
At your closing, you will typically pre-pay the daily mortgage interest that will accrue between your closing date and the end of the month. When you make future mortgage payments you will be paying mortgage in arrears, paying interest that accrued during the preceding month.
Escrows
An escrow account is like a builtin savings account you contribute to from which your lender will pay your property tax bills and your homeowner’s insurance bills on your behalf. Depending on the month you close and the month your bills are due, you will fund a certain amount into the new escrow account at closing in order toto ensure it is sufficiently funded to pay those bills when due. Borrowers with down payments of at least 20% may be able to forgo or waive an escrow account and are responsible for paying their property taxes and homeowner’s insurance themselves. There may be a one-time fee or adjustment to the interest rate in order toto waive the escrow account.
Points
Points are an upfront fee paid to your lender that will lower your interest rate. One point is equal to one percent of the loan amount. Points can buy down the rate for the life of the loan or for a temporary period.
Prepayment Penalties
These vary widely and only apply to certain loan types. Be sure you know in advance if your lender will charge a penalty if you refinance or sell, and the certain period during which the penalties apply.
