Real Estate --- Closing Costs, They Really Add Up
Towards the end of the offer process when investing in real estate,
the terms closing and closing costs will arise. Many buyers are
confused as to what these terms mean, especially if it’s 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 purchasing 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 decided 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 repairs needed on the
property before possession. Any and all of these fees, except the
mortgage can be a point of negotiation. 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 expected to
pay the title insurance or even 50% of the transfer fees. Again,
this is all something which was most likely worked out 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
make sure 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 bring 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 ½ %. This can save the buyer money over the course of the loan.
==> Credit report. This can range 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 discussed 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 taking place with the PMI. Most loans under
$250,000 do not require 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
speak with your real estate agent and lender to get a copy of what
you will be paying at your closing.
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