Home Loan Closing Costs Explained


When purchasing a home, there are many fees
and costs associated with the transaction. Common costs are title insurance, escrow fees,
lender fees, inspections, appraisal, and prepaid cost items such as tax, insurance, and home owner’s
association fees. Costs and fees may be financed, paid up front
and your lender, real estate, or seller may even be able to help pay for these costs. It’s important to understand your fees ahead
of time so you have no surprises when signing your final loan documents. Depending on your home’s purchase price and
loan amount, you should anticipate about 2 percent of the purchase price in total fees
and costs. For an early estimate, ask your lender what
the costs and fees may be when you complete your loan pre-approval. Some loan programs may allow you to finance
these costs by increasing your loan amount. If you are short on funds to close, ask your
agent about a seller credit or commission credit. Lenders can also help offset your closing
costs which may result in a slightly higher rate. Lender and origination fees are a lender’s
cost to complete your home financing. These fees cover costs associated with processing,
underwriting, and funding your new loan. If there’s a cost listed for discount points,
this is an extra fee being charged for a lower interest rate. It is industry standard for real estate brokers
commission to be entirely paid for by the seller, not the buyer. The escrow company will charge a fee for their
services. In the purchase contract, it will state who
the escrow and title company will be and what portion of the fee is owed by the buyer and
the seller. Your costs will be determined by what company
is chosen and how much of a fee you are required to pay. As a home buyer, title insurance will
be a required cost paid at closing. Keep in mind that there will also be other
miscellaneous fees associated with purchasing a home such as a home inspection report, appraisal,
pest inspection, credit report, condo and home owner’s association review, and document
recording. Prepaid costs are required home ownership
costs that are paid up front instead of in the future. These may be higher or lower depending on
whether you’ll have an impound account or not. Prepaid costs may include loan interest, homeowner’s
insurance, property taxes, and home owner’s association dues. Before getting into the home buying process,
it’s important to understand what fees you may be faced with and how to pay for them. Open communication with your agent and lender
is the first step to ensure you understand the cost of home ownership. To learn more about fees and what they mean,
download our home buyer guide.

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