In home buying process, closing cost is the final step. In the other words, you are in a finishing step to buy a home. Closing cost is the step after the property search. However, when you are in down payment and property search, it doesn’t mean that your process will closely end. Instead, there are still several things to bring to the closing table.
In this guidance, you will get more information about closing cost and what costs involves in it. Keep reading or article and get informed!
Closing Costs Definition
Closing cost is the step to process fee that a home buyer should pay to the lender. This fee is to pay the service of the lender in creating a loan for you.
Closing costs cover things like the property search and home appraisal. However, how much you should pay for the closing costs depends on the location where you live and the type of loan you take.
The Amount of Closing Cost
As we have mentioned, closing costs will depend on how much loan you take. They are usually about 3 to 6% of the amount of loan. For example, if you have a mortgage worth $200,000, the closing cost can be around $6,000 to $12,000. Closing cost doesn’t include the down payment. However, it is negotiable.
Closing Cost Payment
Closing cost payment can involve both the buyers and the sellers. But it will be paid a lot more by the buyer. Closing cost can be negotiated involving the buyer and the seller.
That’s called seller concessions. This will be very useful and helpful especially if you have a problem on how to pay the closing costs.
However, the sellers are limited to offer to help deal with the closing costs. Only a certain percentage of the mortgage value that a seller can contribute. Moreover, the contribution also much depends on the type of loan, occupancy and down payment.
In comparison, home buyers can pay the closing cost differently. The closing cost that a home buyer should pay depends on the situation due to the fact that the closing cost can be the lender’s requirements, other can be the government requirement.
Or, it can also be optional. The closing cost will also depend on the type of loan and the location where you live.
The Most Closing Costs in the Disclosure
Below is the list of the most closing costs you may see commonly in the disclosure.
- Application fee
Application fee is usually charged by the lender as his service to help you make a loan. The fee can be different from one lender to another but it generally up to $500. This fee is sometimes included or even excluded from the closing costs.
- Appraisal
Appraisals set how much the lender can lend you for a property. The lender is the one that usually order the appraisal from a third-party management company. Later, the company will send an appraiser to evaluate your future home. Appraisal fees range from $300 but it can rise highly.
- Attorney Fees
Attorney plays a role in conducting the meeting. He is eligible for fees. However, the amount of fee depends on your state and local rates.
- Closing Fee
Closing fee belongs to the attorney who conducts the closing meeting. Attorney is the one that sign off on all closing. The cost will depend on your state and on the situation whether the attorney comes to your closing meeting or not.
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- Courier Fee
Other closing costs you may see on your disclosure is the courier fee. Courier fee is the cost you should pay for the transporting the mortgage documents. Commonly, the courier fee is around $30 based on the lender.
- Credit Reporting Fee
Pulling a credit and looking at the credit score are also the service that you must pay. This way, most credit reporting fee starts at $25.
- Discount Points
To reduce the interest rate, you can pay money upfront on your loan. Buy the discounts points and you will get the lower interest rates to save the interest over the rest of the loan. In this case, one discount point is similar to 1% of your loan.
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- Escrow Funds
Escrow funds keep your money for property taxes, premiums, mortgage insurance and homeowner insurance. Escrow funds are used by the lender to pay for your importance in mortgage payments.
- Flood Certification
The last but not least cost you should pay at closing is Flood certification. This becomes compulsory if the property you buy is close to the flood plain. This way, you may pay $15 to $25 for the certificate.
Overall, closing costs carry many things to pay. There is a number of costs that you should pay at the closing. Thus, be ready if you buy a home by making loan.
