What Expenses End Up in Closing Costs?Article Posted by Expert Author: Sam Stieler on 09/23/2013
It’s an unfortunate fact that the price of your mortgage is more than just the total of your principle calculated with your interest rate. The monthly cost of your mortgage also incorporates property taxes, various forms of insurance and a bundle of other unexpected costs, including the big upfront lump sum of your closing costs.
Usually, closing costs are added to the mortgage amount. They can also be an additional down payment. For the seller, closing costs are subtracted from the check received as settlement. Who pays which closing costs is negotiable. And sometimes, a homeowner who is looking to sell their home as soon as possible will offer to pay all closing costs for the person buying their home. But more commonly, it's the buyer who pays the bulk of closing costs.
What Counts as a Closing Cost?
Anything you need to pay before you can receive your mortgage, and as such your property, falls into this category. Which means you can expect to pay a significant amount of money upfront to get your loan, paying for everything from attorney costs to governmental fees associated with signing the deed over to your name.
There are many items included in closing costs. The cost of the credit report, which is usually around $50 can be paid by the buyer when they first apply for a home loan. The recording fee is what is paid for the transfer of ownership to be recorded. Another common cost rolled into closing costs is the loan origination fee. This is the cost to process the buyer's home loan, and typically amounts to one or two percent of the loan.
Escrow is paid to the buyer's escrow account. The account will collect partial property tax and insurance payments for payment by the due date. As well, the appraisal can be included in closing costs. This occurs when the estimated value of the home is determined. However, the appraisal may not always be able to be rolled into closing costs; sometimes it is due upon submission of the loan application.
Insurance payments can be rolled into closing costs as well. The buyer can pay for a year's worth of insurance. But property taxes are probably the biggest expenses a home buyer will have to pay at the time of closing. The amount paid in property taxes will depend on the value of the home being purchased. Other factors that will influence the amount of property tax you pay include the tax rate of the town your home is located in.
Some lenders will require you to include an estimate per month. This estimate will be your mortgage payments and will equal 1/12th of the annual property tax and homeowner's insurance amount. Many homeowners choose to go this route instead of paying out one lump sum at tax due date time.
Practically speaking this means you need to have a good idea of what you’re going to need to pay for closing costs before you begin looking for loans, as a good idea of how much these expenses will run you will help you make sure you only apply for mortgages you can actually afford.
The best way to ensuring you are paying as much as you should at closing time is to be informed. Going into the closing process means being prepared. And the best way to do that is to use a resource that contains useful information like the tips above. One such place is located at http://www.home-mortgage-calculator.com/, which will help you identify and ask the right questions before you bid on a property or sign any contracts. You can also use the free online calculator to help you see the real cost of your home after you pay interest on it for the duration.
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