Many people focus on how much of a down payment they need to secure a mortgage but you also need to focus on the additional expenses including closing costs. Closing costs refer to the assortment of fees a person must pay to their mortgage lender when closing a home. These costs are due when you finalize the mortgage and take the property's title. Closing costs usually range from 2% to 5% of the amount you have borrowed.
Closing costs must be included in your home buying budget. Here is everything you need to know about closing costs, how much they will cost you, what they include and what they might not.
How do Closing Costs work?
The answer to these questions depends on the state in which you reside, the type of mortgage you get, and the mortgage provider. Typically they range from 2% to 6% of a property’s selling price on a home purchase. For instance, if you buy a house for $150,000 closing costs may be between $3,000 and $9,000.
Closing costs are categorized into property-related fees and mortgage-related fees. A lender is required by the law to provide a loan estimate within three business days after receiving a mortgage application. The key document contains the estimated closing costs outline and other loan details. Three business days before your closing, a lender must provide a closing disclosure form. In this form, you will see the original estimated closing costs and final closing costs along with the difference if costs rose. If any new fees were not on the original loan estimate or if you notice that the closing costs are significantly higher, then immediately seek clarification with the dealer or your real estate agent from Property management Orlando.
What Does Closing Costs Pay For?
The closing costs depend on a particular transaction and are impacted by local insurance fees, interest rates, tax rates, or local appraisal fees. However, here is a general breakdown of some of the common expenses that closing costs cover:
- Taxes: these costs include property tax on the home and local government fees.
- Title Insurance: closing costs include title insurance which protects lenders from financial losses related to property title such as ownership conflicts.
- Appraisal Fees: It is critical to know who has the legal claim to the property you are buying. An appraiser charges this fee for coming to the property and assessing the property’s value to determine an appropriate loan amount.
- Prepaid Expenses: these are the expenses of the items like insurance, property taxes, and interests until the first payment is due.
- Tax Service Provider Fees: This helps to pay for third parties to keep track of the property tax payments and other tax monitoring duties.
- Attorney Fee: the real estate attorney charges this fee to prepare and review home purchase agreements and contracts.
- Origination Fee: The origination fee compensates people for marketing, helping you with the borrowing process, and performing other necessary duties.
The Bottom Line
When buying a home closing costs are unavoidable however, if you take proactive steps to closely analyze your loan estimate with a closing disclosure, you can save big bucks on those fees. It is highly recommended that when you start saving up for a down payment set aside enough money for closing costs. Also, remember that some areas have higher closing costs than others therefore, be your own best advocate and ask lenders to outline the fees they charge and try negotiating whenever possible.