There are a lot of things that you need to know about buying a home. One of them is what is it going to cost you to purchase. There are more costs than just the down payment. Most people don’t realize this. Here is a breakdown of some of the costs you could encounter.
Understanding Closing Costs When Buying A Home
Application Fee: Application fees are charged by the loan officer to offset costs that are related to the mortgage loan process. These fees can include the appraisal, credit reports, and any underwriting that is done.
Closing Fee: A closing fee may be charged for the closing processor who will prepare the documents. They will also close the mortgage for the buyer’s lender. These are usually lawyer or escrow officers at the title company.
Commitment Fee: The commitment fee is usually called a loan origination fee. It is computed at about one percent of the loan amount. This is the fee that pays the lender for the work they did to get your loan approved.
Discount Points: Every discount point equals 1 percent of the loan amount. Discount points are usually utilized by the loan officer to vary the yield of the loan if is being sold to a outside investor. The borrower will be able to get a lower interest rate by purchasing more points.
Homeowner’s Insurance: A one year insurance premium is due at the time of the closing. This premium is to pay for one year of insurance in advance. This is to protect the lender from any issues with the home directly after you take possession of the property.
Mortgage Insurance: Mortgage insurance is required by the lender when the down payment is less than 20%. This insurance can reduce the lender’s financial loss in cases where the borrower defaults.
Prepaid: A Prepaid is an adjustment of escrow accounts. This adjustment is from the time of the closing to the day that the first payment is due. Interest is always paid through the end of the month of the closing; taxes are paid to the end of the month of closing. Plus the taxes are paid through the following month also. PMI is collected for two months. Homeowner’s insurance is also collected for two months. A homeowner’s insurance policy must be in place along with a receipt showing that the first year’s premium has been paid.
Processing Fee: A processing fee is charged by the person who processes escrow; either they work for the escrow company, the title company, or real estate company. They handle all administrative escrow services that occur from the time of contract through the time of closing.
Recording Fees: Recording fees are charged by municipal or state entities for the recording of closing documents into public records.
Title Insurance: Title Insurance provides protection for homeowners and the lender against any financial loss that may result from legal issues with the title. If there is an unknown lean against the property the title insurance will remove the lien by paying what is owed.
It is common practice in most stated to have the seller help the buyer pay most of these fees. They are included in the loan amount, and subtracted from the seller’s proceeds. Federal law states that the seller can pay up to 3% of the loan amount to help cover the buyer’s closing costs.
If you have more questions about closing costs when buying Merritt Island real estate for sale, you can visit Linda Hare’s website where you can search Cocoa FL real estate and Palm Bay Florida homes for sale in Southern, Florida.
