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WHAT TO EXPECT IN CLOSING COSTS ON A HOME PURCHASE
Many are taking advantage of this year’s low mortgage rates to purchase a
home. Pent up with excitement, many families, who have scrimped and saved
for a down-payment, jump for joy when the mortgage lender finally approves
their application. But, they should realize that there’s a whole new set of
expenses that must be covered before actually closing on the sale.
New homeowners are often taken aback by up-front closing costs such as
mortgage and title insurance, attorney fees, recording fees and loan points,
which can run into the thousands of dollars. But there is no need to be
afraid of these charges. With a little background on their purpose and
shrewd financial foresight, closings can be a breeze.
A lender’s charge for processing the loan can be determined at the
beginning of your buying process. Referred to as “points,” these charges are
expressed as a percentage of the total loan. For instance, three points are
equal to 3 percent of the borrowed amount. “Points” can also become a tool
for negotiation with the lender and seller. In a buyer’s market, home
sellers will often agree to pay mortgage fees in order to close a deal.
Title insurance can be a substantial expense. The policy covers any
financial set-back caused by unforeseen defects in the purchased property
and home. The one-time title fee, including search and examination, averages
around $430 for a $100,000 home, but it’s recommended that you check with a
local title insurance agent ahead of time to effectively determine what
you’ll owe before closing.
Additional costs, such as attorney charges, and recording, transfer and
inspection fees, can also be predicated ahead of time by the buyer. Most
often pest and survey inspections, although included in the official closing
statement, are conducted and paid for long before the closing date. However,
buyers should consider them as additional up-front costs.
Some closing costs, such as “points,” are fully tax deductible that tax
year if you show proof of a separate lump sum payment. They are not
deductible in a few cases when the loan is the result of re-financing rather
than a home purchase. Application, appraisal, documentation and broker fees
can not be deducted.
Some states require payment of property taxes at closing. In some
instances, buyers and sellers are asked to put money into an escrow account
that will cover any past and future tax obligations. Be sure to check with
an attorney or real estate agent before the closing to determine your
property tax commitments.
Also, be prepared to pay any
assessments if buying a condominium or into an association-governed
property. Fees for credit reports, notary public seals and assumptions,
which includes the processing of official documents, may also arise.
Knowing what total closing costs will be before starting your
home search can help you better understand what price range is right for you. In
the end, the process of closing on a mortgage will be easier than you think,
leaving more time to plan for your new home.
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