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Archive for the ‘Closings’ Category

When purchasing a home, you not only need money for a down payment, but also for closing costs as well. Closing costs are the transaction related costs to purchasing a home. Generally speaking, closing costs run about 2% of your purchase price.

When applying for a mortgage, the lender is required by law to give you what is known as a Good Faith Estimate within three business days. The GFE is supposed to list out all of your expected closing costs so that there are no surprises at closing. Unfortunately, many lenders often produce very inaccurate GFE’s only to give their customers the smack down at closing when it is too late to back out. They are able to do this because most consumers focus too much on the interest rate and not the fees that go along with that interest rate. Additionally, closing costs can be very confusing because many of the fees are not controlled by the lender and it is really easy to low ball the GFE. Many consumers focus on the bottom-line or total estimated closing costs. This the incorrect way to compare closing costs because the bottom-line is not totally controlled by the lender.

Closing costs can be broken down into three main sections.

Lender Fees: These are the fees that lenders charge to process your loan. Lender fees generally consist of items such as appraisal, underwriting, processing, and administrative fees. It doesn’t really matter what these fees are called individually, but what the total of the fees are. If you are paying points, these would be listed under this section as well. If you are comparing mortgages from two different lenders, these are the only fees that you can use since all other fees will be the same regardless of who handles your mortgage.

Prepaid Items: These are items related to your mortgage that the lender requires you to pay in advance at closing. Typically, prepaid items consist of interest prorated from the day you close till the end of the month and property tax escrows. The amount of prepaid interest depends on the day you close and the amount of property tax escrow depends on when taxes are due in your area.

Title & Government Fees: Traditionally, the title company is chosen by the seller on a purchase. Therefore, the lender does not control the title company fees. However, an experienced loan officer should be able to reasonably estimate typical title company fees in your area. Title company fees consist of the charges to coordinate the closing and to provide title insurance. Also, any taxes or government recording fees will also be in this section. If you are using an attorney, their fees will also be in this section as well.

All of these costs add up to closing costs. When comparing mortgages, it is important that you understand these ancillary costs and you are prepared to cover them. Your loan officer should be able to explain each and every charge that you are expected to incur when closing your loan – even the charges that are unrelated to the lender.

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