If you are a first time home buyer, you may hear people refer to closing costs. One of the tips for first time home buyers that you need to know is how to prepare for closing. The finalizing of a real estate transaction is called the closing, and any costs associated with that closing, on the part of the buyer or seller, is referred to as closing costs.
Closing costs aren’t a single charge, but refer to all expenses/costs associated with your real estate loan. One of the best tips for first time home buyers is there should be no surprises. All closing costs must be listed on your settlement form. All lenders are required to provide you with these costs by providing you with “good faith estimate” within three days of loan application.
The exact amount of closing costs will vary and some are negotiable. The following is a comprehensive list of possible closing costs.
- Credit report fees. The mortgage company will check your credit before issuing a loan, there is a fee for this.
- Origination fee. This covers the paperwork and labor incurred by the lender to process the mortgage.
- Inspection fees. The buyer and/or the mortgage company may require an inspection of the property, and this fee is included in closing costs.
- Recording fees. This covers any fees charged by the government for any filings and recording of the transfer of the deed.
- Discount points. This is extra money you may put down to reduce the mortgage rate.
- Survey fees. Most lenders will require a survey to confirm the property size and borders.
- Appraisal fee. Before a lender will issue a loan, they order an appraisal to ensure the appraised value is equal to or greater then the purchase price of them home.
- Brokerage commission. The commission paid to the brokerage house responsible for making the sale and representing you during the sale.
- Title search. A fee paid for performing a background check to make sure the mortgage is clean, with no liens or other unpaid bills associated with the property.
- Title insurance. A policy to protect the lender in case the title search doesn’t find any existing unpaid claims/assessments.
- Home warranty. Your new home is warranted for one year. Garrett Walker Homes includes a 2/10 builder warranty on all of our homes to ensure additional piece of mind.
- Escrow deposit. This is that is money rolled into the loan to cover things like upfront/prepaid property taxes and insurance that the lender may be asked to pay as part of the mortgage. This usually amounts to two months of pre-paid taxes and insurance which help to set up your escrow account.
- Pro-rated taxes, insurance and fees. This can cover anything that is owed by either party due to the closing being made in the middle of the month or year. For instance, the seller may have already pre-paid property taxes for the year, and now the buyer is responsible for the pre-paid portion from the closing date going forward..
- Termite inspection. New homes are treated for termites. You will be provided a termite treatment certification stating the soil under and around the foundation was pretreated for termites. The termite company who performed the treatment warranties the treatment for a period of three years.
These are most of the things you are likely to see on a closing document, but there may be others. Always request a good-faith estimate as early as possible so that you can prepare for the fees and attempt to negotiate what you are able. Also, carefully go over each line item at the closing table to make sure there is nothing unexpected or out of line. In addition, make sure that the closing costs are being charged to the correct party, as many of these costs can be paid by the buyer or the seller or both.
Closing costs are a normal part of obtaining a new mortgage. Knowing in advance what these costs are will help you set aside the required funds and avoid any last minute surprises.