The term “closing costs” encompasses a group of fees and payments that must be made at the close of a home sale. Some of these costs are paid by the buyer, some by the seller, or some by both in an agreement to split the fees. Some costs are lender-related, while others are simply aspects of finalizing a sale. Not every cost applies to every sale, so you should make sure you understand which fees are involved in your purchase. To get an idea of the expenses you might expect to incur, here are just a few:
Lender Fees. These can include the application and origination fees for the loan, and perhaps a fee for running your credit report, which was done as part of the underwriting process for the loan.
Discount Points. Also referred to simply as “points,” discount points are a fee paid for up front in exchange for a lower interest rate over the life of your mortgage loan. Your lender will have specific details about the price of discount points for your sale.
Insurance. There are several possible insurance costs you will be responsible for when you buy a house. One is private mortgage insurance (or PMI), which is required by lenders if you pay less than 20% down on the loan. You might also be required to pay for title insurance, which protects your lender from any liens against the house.
Appraisal. Your lender will want assurance that you are paying the proper value for the home you are purchasing. To verify that amount, an appraiser will be hired to assess the house. The appraisal fee may be rolled into your loan costs.
Escrow. The bank may establish an escrow account from which to pay your annual property taxes. The initial establishment of this account may be included in your closing costs.
Attorney and Recording Fees. If you are using the services of a real estate attorney, the attorney’s fees may be included at close. Local governments also charge fees – and sometimes taxes – for recording the sale.
Since no home sale is identical, your real estate agent is your best resource for understanding the nuances of your particular sale. He or she can advise you about the types of closing costs you can expect to pay when closing day arrives.
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