Towards the end of the offer process when investing in real estate,
the terms closing and closing costs will come up. Many buyers are
confused as to what these terms mean, especially if it�s your first home
purchase. Closing cost consists of 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.
Discussions 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 decided by the sales contract
signed between you and the seller. Sometimes the seller can be asked 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 discussed 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 prior to 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 discussed 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 � %. This can
save the buyer money over the course of the loan.
==> Credit report. This can vary 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
require 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 says 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 going on
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
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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