Real Estate --- Closing Costs, They Really Add Up
Towards the end of the offer process when buying real estate, the terms closing and closing costs will arise. Many buyers are confused as to what these terms mean, especially if itís your first home purchase. Closing cost refers to any fees associated with the final sale and transaction of the home. The term closing refers to a meeting in which each member of the real estate transaction is represented. Conversation will include going over simple formalities such as who is getting what and who is buying it. People involved include the buyer, seller, and lender as well as the Title Company and real estate agent.
The fees can be anything from the title search to ensure a clear title to the inspection fee. It actually can depend on where you are located as to who pays for what. This can also be determined by the sales contract signed between you and the seller. Sometimes the seller can be requested to pay all the closing costs. This would mean you do not have to pay any of the fees being charged. There are some you just will not get out of no matter how much you debate or negotiate. The appraisal is usually one of them. However most of the others can be negotiated effectively.
The seller will usually pay for things like the real estate commission and the loan payoff of his old mortgage. He can also pay for title insurance and, of course, any fixing needed on the property before possession. Any and all of these fees, except the mortgage can be a point of discussion. This would have been done before closing so everyone understands what is expected of them.
The buyer will be asked to pay for the loan origination fee, property insurance, and inspections if there were any done. Depending on the area you live in the buyer may also be asked to pay the title insurance or even 50% of the transfer fees. Again, this is all something which was most likely negotiated in the signing of the purchase agreement.
The typical closing costs and fees associated with buying a home are:
==> Loan origination fee. This is the fee charged by the lender to ensure the loan process takes place. The typical charge is 1% of the loan. On $100,000 the loan origination fee would be $1,000.
==> Discount points. This is money paid to buy down the interest rate. Each point is valued at a percentage of the interest rate. In many areas 1 to 2 points can buy down the interest rate by as much as Ĺ %. This can save the buyer money over the course of the loan.
==> Credit report. This can be anywhere from $50 to $75 depending on your lender.
==> Title search. In San Diego California, the Seller will usually pay this based on the purchase price. On a $750,000 home this can range from $1,728 to 2,160. If the buyer is taking out a mortgage, the lender will need title insurance coverage. This is usually paid for by the buyers. Again, on a $750,000 home, the buyer would pay approx. $873.00 for this.
==> Appraisal. The fee for an appraisal can be talked over with your lender. If you know a good appraiser, you can see if he or she is acceptable to your lender. You can save money this way. Typically the fee for the appraisal is anywhere from $350 to $450.
==> Premium Mortgage Insurance (PMI). The PMI can be negotiated. This is the insurance which states that a high risk loan is guaranteed against default. In other words, a lender who is giving a loan for 80% or more of the property value can charge the borrower a fee until the mortgage is paid down to under the 80% ratio. There are many changes occurring with the PMI. Most loans under $250,000 do not need it any longer.
==> Recording fee. The fee to record the real estate transaction. Usually only $75 or so.
There may be other fees in your area. These are the basics. You can talk with your real estate agent and lender to get a copy of what you will be paying at your closing.
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