Closing Costs 101
Posted on April 22, 2009 in the Real Estate category
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Closing costs are often the last thing a person thinks of when buying a home. While closing is the joyous moment the home becomes yours, the costs could be surprisingly aggravating.
When you purchase a home, condo or other property, you will go through a time known as escrow. During escrow, various issues related to the property transfer are worked out. The last day of escrow is known as the closing day, in which you are going to be paying closing costs.
Closing costs come in many forms. Some involve significant cash, while others are relatively painless. Here’s a list some of those costs broken down for you:
Escrow Fees An escrow agent is basically a third party that works with both the seller and buyer to finalize the transaction. For this assistance, the escrow agent will charge you a fee. Depending on your area and the agent, you can expect fees from a few hundred dollars to around a thousand. Make sure you find out the fees before choosing your escrow agent.
Home Loan Obtaining a home loan in the current market is a highly subjective event. “Points” can be a major cost associated with these loans. Points are essentially a fee you pay or have built into the loan for the privilege of being allowed to borrow money. A point usually equates to 1% of the loan. On a loan of $300,000, one point would equal $3,000. If you have great credit, you can shop for a loan that doesn’t require you to pay points.
Home and Title Insurance Insurance for your home and title are a must. If you are borrowing money to purchase the home, each is mandatory. If you are using your own funds, you should still purchase both forms of insurance. As each name implies, they provide insurance against issues involving your home and problems with the title transferred to you. You want to have clear title. Proof of homeowners’ insurance is mandatory at closing.
PMI Private Mortgage Insurance, “PMI”, is mandatory if your down payment is less than 20% of the purchase price of your home. You can expect to pay a few hundred dollars a year in PMI Inspections, Appraisals and Miscellaneous Fees.
In the home purchase process, you are going to use a variety of services to ensure the property is your dream home. These services come with fees and you can expect to pay for home inspectors, appraisers and the like. Depending upon the state you live in, many of these fees may be built into your mortgage. Nonetheless, you need to know exactly what you must pay for on closing day so you can pay accordingly.
Closing escrow should be one of the happier days in your life, particularly if it is for your first home. Make sure you know the costs associated with it so you don’t have to spend the day running around borrowing money.
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