At the end of a real estate transaction, closing costs are paid. The ending phase of a real estate transaction is called a closing because the title of the property is transferred to the buyer. Closing costs are either paid by the seller or the buyer, as per the nature of the arrangement.
The cost of buying a home
The most popular method of purchasing a house is through a mortgage. When you obtain a mortgage, you will need to handle the closing costs. In this case, the closing fees will have to be paid to a third party and the lender. In addition to the down payment of a home, and the principal along with the interest of the mortgage, you will be paying the closing costs when the mortgage is closed. In many cases, home buyers handle the closing costs. However, there are certain situations such as VA loans where the seller is required to handle a portion of the closing costs.
A breakdown of fees
Closing costs are actually made up of several different components. These vary greatly according to the type of property that you wish to buy and depend on its location. Closing costs generally include a fee for analyzing the credit report, attorney’s fees, inspection charges, a fee for appraisals and surveys along with title insurance. Other costs include a fee for loan origination (lenders charge for handling the paperwork), fees for title searches and escrow deposits that might cover property taxes for a few months, along with private mortgage insurance. In some cases, closing costs also include fees for pest inspection, recording fees that are paid to the county or city in exchange for new land records, and underwriting fees that are charged for the evaluation of the mortgage application.
The actual amount for closing costs changes for many reasons such as the different components that make up the cost for each house. Typically, the cost comes up to about 2 – 5 percent of the home’s purchase price.
How much will you end up paying?
The Good Faith Estimate (GFE) is an estimate that lenders are required to provide to potential buyers. This is an estimation of the closing costs on your home. However this will not be an accurate estimation of the – the actual fee may be about 10 percent higher. Within one day of the closing, the lender is required to provide an HUD-1 settlement statement where the closing costs are outlined. Buyers can compare this with the GFE and discuss each component with the lender. In many cases, buyers can negotiate the fees that make up the closing costs as some are actually unnecessary. Things such as courier costs and administrative costs are unnecessary and can be removed with a bit of persuasion. If the closing costs are exorbitant and the lender is unwilling to adjust them, trying shopping around for a different lender who offers a lower closing cost.