Be sure not to overlook the additional closing costs when purchasing a home
As anyone who has bought a home knows, the property’s purchase price is only part of what a homebuyer is obligated to pay as part of a conventional or FHA loan. Before the loan is completed and the sale finalized, an assortment of fees and taxes will be due up front as the homebuyers’ closing costs.
Closing costs are in addition to the down payment. Your mortgage lender is required to provide you with a good faith estimate, or GFE, of costs within three days of your loan application unless your application has been denied. Later, you should be given a complete and detailed list of closing costs in a HUD-1 settlement form before the home sale is finalized.
The Consumer Financial Protection Bureau notes that the good faith estimate allows you to see the true cost of your loan and to compare offers from different lenders before proceeding. Getting a GFE does not obligate you to take the loan. The bureau also states: “You can’t be charged any fees until you get the GFE and indicate that you plan to take out the home loan. But you can be charged a credit report fee.” Be aware also that some items on the estimate may change before the final closing. Check the Consumer Financial Protection Bureau website, www.consumerfinance.gov, for details.
Among the costs that may be due at closing are:
- Loan origination fee
- Loan discount, also known as points
- Appraisal cost
- Survey cost
- Credit report fee
- Interest – for period from the day of closing through the end of the month of closing
- Mortgage insurance application fee
- Mortgage insurance premium — for one year, in advance
- Homeowners insurance premium – for one year, in advance
- Flood insurance – if required
- Escrow/reserves deposit to lender
- Settlement/closing fee to settlement agent
- Title services and title insurance charges
- Document preparation fee
- Notary fee
- Attorney fees for the settlement
- Government recording fees
- Transfer taxes, document or transaction stamps
The home seller is generally on the hook for the real estate agent’s fee. However, if you as a buyer hired a buyer’s agent or broker, you may face a charge at closing — the point is negotiable and its handling varies by location.
Negotiating who pays
Responsibility for some charges can be negotiated between the buyer and seller. According to the American Land Title Association, for example, the settlement/closing fee to a settlement agent is often split between the two parties.
Some loan types will allow certain closing costs to be rolled into the loan as long as the amount borrowed is not pushed too high. Check with the lender on your loan type and situation.
A buyer also may be able to fold closing costs into the home’s purchase price by increasing the amount of money he’s offering for the house. In this kind of negotiated move, the seller agrees to pay closing costs. You will end up making the payments over time in your mortgage.
Your real estate agent or broker should be well versed in homebuyers’ closing costs. Discuss the issue with her or him so that you can be prepared.
Watch out for private resale fees!
The American Land Title Association warns consumers to watch out for the appearance of relatively new “Wall Street Home Resale Fees,” aka private transfer fees, on a final closing statement. These “for-profit covenants require homeowners to pay a premium for the right to sell their property,” usually 1 percent of any sales transaction within the next 99 years, the association explains. The fees may be placed on a property by a developer. The for-profit fees differ from the resale fees imposed by homeowners or condo associations, which are intended to be used for community improvements, ALTA notes.