Closing costs can come as a shock to anyone buying or selling real estate - especially to investors. Here's an explanation of the various expenses you must plan for:
Down Payment
Most lenders require a down payment of from zero to 20% for a normal home purchase.
Lender's Loan Origination Fee
Government regulations allow 1% origination fee on FHA or VA loans. Conventional loan fees can vary from 1 to 3 points or more. A point is 1% of the loan.
Appraisal Fee
About $300-$500. Non refundable.
Credit Report
$50-$60. Non refundable.
Tax Service Fee
In some areas a charge of approximately $75 by a tax service company to verify to lender that taxes are actually being paid.
Assumption Fee
Fee of approximately $250 up to 1% of the loan balance charged by existing lender for permission to assume existing loan.
Pest Inspection Fee
A fee of $100 - $175 is charged for inspecting property for wood destroying organisms (termites). Customary for the seller to pay.
Optional Fees
At buyer's option: property inspections that cover foundation, electrical, plumbing and overall construction at a cost of $300-$400. Roof inspections cost $75-$125. Geological reports about $100. Septic $200-$400. Radon $50-$100. Asbestos $75-$125.
Title Insurance
Cost determined by a rate chart and is based on the loan amount.
City Transfer Tax
Imposed within the corporate limits of some cities.
The VA does not allow the veteran buyer to pay any portion of this cost.
Miscellaneous Costs & Fees
$150 should cover notary, recording documents, endorsements, etc.
Hazard/Fire Insurance Reserve
Two month's premium is usually collected for the impound account if required. Paid by buyer.
Prepaid Interest
Interest must be paid from close of escrow to 30 days prior to the first regular mortgage payment.
Mortgage Insurance
Required on all conventional loans greater than 80%.
Cost ranges from about 1/2% to 1% per year. 14 months premium is collected in advance. For benefit of lender in case of default.
Tax Impounds
When new loan is going to have an impound account, lender will require from 2-10 months taxes be deposited in impound account. If taxes are prorated, buyer's total charge for taxes should equal about six month's taxes.
Escrow Fee
$750-$2500, depending on the sales price. Can be paid by buyer, seller or split. Everything is negotiable.
We have listed examples for typical closing cost. Closing procedures and costs vary from area to area.
Your real estate agent and loan agent can provide estimated closing costs. Don't neglect to add them to all the other costs of buying real estate when determining the affordability of a property.
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