Understanding Closing Costs
Closing costs are simply the fees associated with 1) purchasing a home, 2) borrowing money, and 3) preparing paperwork to finalize the sale. Your total closing costs will vary depending on where your new home is located, what type of property you are buying, the price of your home, and the complexity of the transaction.
It is extremely important that you work closely with your buyer’s representative in the early stages of your home search to estimate what these costs could be, since closing costs can easily represent thousands of dollars. The main categories are:
DISCOUNT POINTS TO BUY DOWN THE MORTGAGE
If you want to reduce the ongoing cost of your mortgage over the life of the loan, you’ll want to consider this optional fee. Amounts can vary significantly, from 0.5 to 3 points on the total mortgage amount. This is a one-time charge that is fully deductible as mortgage interest.
COSTS FOR ORIGINATING THE MORTGAGE
This generally includes a variety of fees such as the loan origination fee, the appraisal fee, and the cost of credit reports. Other related closing fees may include hazard and mortgage insurance, and interest accrued on the mortgage between closing date and the end of the month.
TAXES AND OTHER LOCAL FEES
Charges will vary according to local government requirements. Some may demand that property taxes be prorated according to when you officially own your home. You may also be required to pay personal property taxes, homeowner’s association dues, and other assessments that are specific to the area that you are moving into.
You will have to pay for any research involving public records and title history for your new property. This insures that the title is unencumbered by other ownership claims or liens and can be delivered to you at closing. Other costs include recording and transfer fees, which cover legally recording the deed to your name.