What Are Closing Costs?
You've found "the home", the seller has accepted your offer, your loan has been approved and you're eager to move into your new home. But before you get the key, there's one more step-the closing.
The closing is the process of passing ownership of property from seller to buyer. As a buyer, you will sign what seems like endless piles of documents, most of which are your loan disclosures and associated documents, in addition to the transfering of the deed and titling paperwork. It's the fees associated with the closing that many times remains a mystery to many buyers who may simply hand over thousands of dollars without really knowing what they are paying for.
Below are some common costs that are both mortgage-related and government imposed related to your closing fees. Here are some of the common fees included in the "closing costs" for buyers. If you want to get specific information about your closing costs in a transaction, we recommend connecting with your lender for the exact breakdown. The fees / costs may vary from lender to lender.
Appraisal Fee: This fee pays for the appraisal of the property. You may already have paid this fee at the beginning of your loan application process. When you pay for this may vary by lender or mortgage company.
Credit Report Fee: This fee covers the cost of the credit report requested by the lender. This too may already have been paid when you applied for your loan.
Loan Origination Fee: This fee covers the lender's loan-processing costs. The fee is typically one percent of the total mortgage.
Loan Discount: You will pay this one-time charge if you have chosen to pay points to lower your interest rate. Each point you purchase equals one percent of the total loan. Some buyers elect not the purchase points.
Title Insurance Fees: These fees generally include costs for the title search, title examination, title insurance, document preparation and other miscellaneous title fees. The titling fees vary slightly by title company, although in the Central Wisconsin area, they are quite comparable.
PMI Premium: If you buy a home with a low down payment, a lender usually requires that you pay a fee for mortgage insurance. This fee protects the lender against loss due to foreclosure. Once a new owner has 20 percent equity in their home, however, he or she can normally apply to eliminate this insurance. Talk to your lender on PMI premium.
Escrow Accounts: In locations where escrow accounts are common, a mortgage lender will usually start an account that holds funds for future annual property taxes and home insurance. Essentially the lender will collect property taxes as a portion of your total monthly payment and pay the property taxes on your behalf at the end of the year.
Recording Fees and transfer taxes: This expense is charged by most states, including Wisconsin, for recording the purchase documents and transferring ownership of the property.
Make sure you consult your real estate agent to find out which fees--and how much--you will be expected to pay during the closing of you prospective home. Keep in mind that you can ask for a seller credit to cover some of the closing costs in some instances. Your agent will help walk you through your options when submitting your offer.
Have a question or want to discuss this further? Contact our team today, we are happy to help!