What Are Closing Costs Made Up of and Who Are We Paying?(1)
What Are Closing Costs?
Closing costs are fees associated with settling any real estate and mortgage transaction. It is critical to know how much your closing costs can be prior to entering into a real estate transaction or you may end up not even having enough to settle. Whether you are purchasing or refinancing a home, you will usually get hit with costs from the lender, the title company, the appraiser, your attorney (on purchase transactions), among other parties.
Lender Related Fees:
These are fees directly and indirectly related to your obtaining a mortgage for your real estate transaction. These can include but are not limited to the: processing fee, underwriting fee, document preparation fee, closing fee, and a wire transfer fee. Here is an explanation of each type of fee that is usually included in closing costs:
Third Party Fees:
Having your house appraised is essential, especially if you need a mortgage to purchase or refinance the property. The appraised value is based on recent, comparable home sales in the area around the subject property and provides the lender with assurance that their collateral (the property) has sufficient value to support the loan they are giving you. In the event of default, the lender would take over the property and try to sell it so its imperative that they know exactly what the market value is. Generally the cost for a conventional appraisal in today’s market is about $400.
When applying for any mortgage, the lender pulls a tri-merge credit report which shows your entire credit history from the three major credit rating agencies: Trans Union, Equifax, and Experian. Most lenders will use the middle score of the three for qualification purposes. The cost for this credit report can range from $12 – $35 depending on the lender. They usually determine their cost by the average total cost of credit reports vs the total amount of actual funded loans.
Title Company Fees:
Title fees usually represent the largest cost in any real estate transaction, especially on purchase transactions. Title company fees are usually made up of title insurance, closing/settlement fees, wire transfer fees, and recording charges. The title company may also charge a fee for a survey to be done if there is not one on public record, as well as expensive “transfer taxes” and/or mortgage taxes, depending on your local market. Total title charges can be as cheap as $500 on a conventional refinancing, all the way up to $2000-$4000 for title insurance alone depending on your loan amount and what area you are buying the property in.
Finally, most home buyers hire a real estate attorney to help them ensure an accurate purchase transaction takes place and that there are no critical errors in the documentation. Real estate attorneys typically charge $500-$700 in most markets for overseeing a residential real estate purchase transaction.
In conclusion, its very important to consider all closing costs involved in any real estate transaction and to always review the Good Faith Estimate closely before ultimately choosing the lender.
Author “Joe Mortgage” is a marketing and advertising leader who is owner of hotratequote.com and is focused to bringing readers with relevant as well as valuable advice. Find out more about the following weblink for a 100 % FREE refinance consultation and skilled counsel on how to correctly calculator your closing costs.