What is involved in closing costs?
If you get a home loan from a bank, you will have to pay the closing cost. The amount of the closing cost depends on how much you are financing through the bank. Closing cost is 3 percent of the financed price. If you’re buying a $100,000 home, then your closing cost will be about $3,000. That is the amount you will pay out-of-pocket along with your down payment. The reason closing costs are so high is because of all the fees involved. There are 15 fees involved with the closing cost. The rates are generally as follows; attorney fees, title service fee, recording fees, document fees, inspection fees, brokerage commission fees (seller’s cost), mortgage application fees, points fee, appraisal fees, inspection fees , home warranties fees, prepaid homeowners insurance, prorated property tax, prorated homeowners association due and prorated interested parties. That’s a lot of fees you may not be told about before you buy a home.
What exactly do all these fees mean is the question many people ask? Attorney’s fees are to pay the attorney for preparing and filing all official documents. The title service fee is to cover the title search that must be completed prior to purchasing your home. Registration fees are for the change of ownership of the property from the seller’s name to the buyer’s name. The document fee is collected by a government entity as a tax required by law. An inspection fee is for the property to be inspected to verify lot size dimensions. Brokerage commission fee (seller’s cost) is just a fancy way of saying a fee to pay the real estate agent who helped you find the home you are buying. The brokerage commission is usually around 6 percent of the price paid for the house. Mortgage application fees are what you have to pay to the mortgage company to help you get the loan to buy your house.
A point fee is not always there, as it is something the bank offers you to lower your interest rate. You can buy points to lower your interest rate. This will only benefit you if you plan to stay in that house for more than 5 years. The appraisal fee is also what it says, you have to appraise the house before you buy it. If the value is less than what the buyer and seller agreed to for prices, the seller has no choice but to lower their price. A mortgage company will not finance a house for more than the value of the house. Inspection fees are for the home to be inspected for significant problems and pests. Home warranties are offered to the buyer in the event that a major expense occurs, this warranty will help pay for it. For example, if the oven breaks down, the warranty will help pay to repair or replace the oven. This is an optional fee. Prepaid homeowners insurance is determined by the date of home purchase. If the house is purchased in April, you will only pay for the remaining months. This is so you don’t have to pay for the months you didn’t own the house. Prorated property tax works just like prepaid homeowners insurance. This is so you don’t have to pay for the months you didn’t own the house. The same is true for prorated interest and prorated HOA liability.
These are many of the fees that the buyer must pay. There is a lot of work that goes into a home loan. Many people simply don’t see how much work it takes to get a home loan. Everyone must be paid, so as a buyer, you must also pay.