What Are Closing Costs?
When a person or entity purchases real estate, there are many fees or costs involved, aside from the purchase price of the property. These are referred to as closing costs. Closing costs must be paid in advance of "closing" a real estate transaction, and they are generally the responsibility of the buyer. In some cases, the seller will pay a certain amount of the costs in order to make the deal more attractive or to make the sale move more quickly.
Closing costs are the products of securing a mortgage, and represent payment for items required by the lender as conditions of the loan. Some of the costs include things like title searches, fees to record a deed, appraisal fees, credit check expenses, homeowner's insurance and mortgage insurance. Other fees are also included, such as a loan application fee.
Another common cost is points. By buying points, you can lower your interest rate. Other costs may include things such as attorney's fees if applicable, fees for surveying the property, and sales tax and property taxes. Origination fees are also part of the closing costs.
Original fees, which are separate from the application fee, are monies charged to defer administrative costs incurred by the lending institution. This amount is deducted from the loan before it is disbursed. Simply put, this money is taken from the amount of money loaned, before the borrower receives the money. Origination fees are generally between 1% and 3% of the total mortgage, while closing costs as a whole represent up to 5-6% of the mortgage amount. For government backed loans, the fee goes to the government, while with other types of loans, the fee is collected by the administrator of the loan program.
There are many costs involved in real estate purchases, which may not be limited to those mentioned. They can add up very quickly. It is a good idea to consult with the bank or mortgage company and make sure all items and fees have been disclosed in advance. You can also ask for an estimate of the total costs to you. If you find the costs too high, you may be able to negotiate some of the fees with your lender, seek another lender, or negotiate payment of certain closing costs with the seller.
Often people are shocked at the closing costs at the end of mortgage transactions, but it is good to know what these charges are and what they are for.
I am a first time home buyer wondering what kind of fees (and how much/ how high) are allowed to be charged at the close of escrow by a lender and a mortgage broker.
If fees that were not disclosed ahead of time are charged, is this legitimate? Or does this violate the Fair Disclosure act?
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