Closing costs are simply the fees, costs
and taxes associated with the purchasing of a home, the borrowing of
money and the preparation of necessary paperwork to finalize the sale.
The total amount of your closing costs will vary depending on where your
new home will be located, what type of property you are buying, the
price of the home and the complexity of the transaction. It is extremely
important that you work closely with your Realtor and lender in the
early stages of the home buying process to determine what these costs
could be, since closing costs can easily represent thousands of dollars.
The
main categories are:
1. Discounts Points to
Buying Down the Mortgage
This fee is optional and can vary
significantly from 0.5 to 3 points on the total of the mortgage. It is a
one-time charge that is calculated based on the amount of the mortgage
loan. A buyer would pay this amount up front to reduce the ongoing cost
of the mortgage over the life of the loan. This charge is fully
deductible as mortgage interest.
2. The Costs of Originating
the Mortgage
These generally include a variety of
fees such as the loan origination fee, the appraisal fee and the cost of
credit reports. There are also other fees that you will be expected to
pay at closing such as hazard and mortgage insurance and interest
accrued on the mortgage between closing date and the end of the month.
3. Taxes and other Local
Fees
These charges will vary according to
the requirements of local governments. Some may demand that your
property taxes be pro-rated according to when you will officially become
the owner of the house. There can also be personal property taxes,
homeowner's association dues, and other assessments that are specific to
the area that you are moving into.
4. The Cost of
Documentation
You will have to pay for any
research involving public records and the title history on the property
you are buying. This insures that the title on your property is
unencumbered by other ownership or liens and can be delivered to you at
closing. Other costs include Recording and Transfer fees that cover the
legal recording of the deed to your name.
It is critical that you have a clear
understanding of the total cost of your closing. Your real estate agent
or the attorney/escrow company should supply you with a detailed
estimate well in advance of the actual closing.
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