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Closing cost: Different costs that a home buyer has to pay

Posted on: 01st Apr, 2004 03:22 am
Closing Costs are the expenses of the borrower at the time of closing of the mortgage loan. These costs comprise of the following charges.

  • Loan origination fee:
    The origination fee includes the cost of making the mortgage loan. It is also known as origination point. These points are not tax-deductible.


  • Discount points:
    These are prepaid interest demanded by lenders in return of lower interest rate charged on the loan amount. Each discount point equals 1% of the loan and reduces the loan amount in most cases by 0.125%. These points are tax-deductible.


  • Appraisal Fee:
    The Appraisal fee is charged for making an estimate of the value of the property which is kept as security for the mortgage loan. An appraiser appointed by the lender carries out the appraisal. The loan amount is based on the appraised value or the sale price, whichever is the least.


  • Credit report fee:
    Lenders ask for a credit report of the borrower from any of the three credit reporting agencies like Equifax, Experian and Trans Union. This is mainly done to assess the credit worthiness of a borrower. Lenders demand a fee for reviewing the credit report.


  • Attorney's fees
    These fees are paid to an attorney for preparing and reviewing all the documents needed to close the loan. The attorney demands charges for conducting the closing on behalf of the lender.


  • Survey fee:
    Lenders require a fee for conducting a survey which includes a verification of the official boundaries of the property.


  • Pre-paid items:
    Lenders often require the payment of prepaid items like insurance premiums for private mortgage insurance, homeowner's insurance including hazard insurance, and real estate taxes. The maximum amount that a lender can demand from a borrower is limited by the U.S Department of Housing and Urban Development.


  • Title fees:
    Title fees include charges for title search and title insurance. Through a title search, the lender verifies who the actual property-owners are and whether the property is free of liens. The title search company then issues a title insurance which protects the title of the property against any unpaid mortgages and judgments. In case a claim is made against the property, the title insurance provides legal protection and pays for court fees and related costs. The title insurance policies are of two kinds - lender's policy and borrower's policy.


  • Loan processing fee:
    It includes fee charged by the lender for preparing the mortgage loan application and other legal documents related to the mortgage.


  • Recording and transfer charges:
    These charges include fees paid to the local government for filing official records of a real-estate transaction.

The closing costs vary from one lender to another across different states and counties. Often the seller may finance the closing costs. Generally, it amounts to 3%-5% of the loan amount. Borrowers get a rough estimate (Good Faith Estimate) of the closing costs within 3 business days of applying for the mortgage loan. They also get a list of the actual costs a day before closing. The document with the actual loan fees is known as the HUD-1 Settlement Statement.
Where can I go to get a list of max. state fees broken down by %?
Posted on: 06th Feb, 2006 11:34 am
Hi Mark,

You can get an idea on state wise average closing costs here.

For percentage breakup and maximum fees, I am searching and will let you know when I get.

James
Posted on: 06th Feb, 2006 11:50 am
What closing costs do the sellers pay and what is the average %?
Thanks,
JDL
Posted on: 28th Aug, 2006 06:08 am
Hi,

The closing costs for the seller are like payoff fees for loan, title insurance, termite repairs and pest inspections, transfer taxes, escrow fees, attorney fees and charges for getting the certificate for compliance for building and broker's commission.

Claflin
Posted on: 28th Aug, 2006 10:35 am
Hi,

Seller's closing cost can sometime differ from one location to another depending upon where they are situated.

As for example, a seller is required to pay for the title insurance amount in Los Angeles but if we go to some other parts like San Francisco, the title insurance are primarily paid by the buyer.

But as far as my knowledge goes the average closing costs for the seller may go up to 4 to 7 percent.

Thanks
Posted on: 28th Aug, 2006 05:12 pm
how can I get an explanation of what all the different numbered items means on the settlement statement on line?
Posted on: 29th Mar, 2007 06:37 am
Hi Wanda,

You can go through these 2 pages to know what is included on a HUD-1 settlement statement and what they stand for:

http://www.hud.gov/offices/hsg/sfh/res/sc3sectd.cfm and
http://www.hud.gov/offices/hsg/sfh/res/sc3secta.cfm

Hope it helps :)
Posted on: 29th Mar, 2007 01:19 pm
yes, I visited the site and it's self explanatory..........
Posted on: 30th Mar, 2007 12:22 am
I am buying a house which I requested a survey. upon completion it has been found that the house is not within the boundaries. It is on the lot next to it somewhat. The seller has title insurance. what is the most probable outcome of this scenario
Posted on: 25th Apr, 2007 08:15 pm
Hi Diana,

Since the house has already crossed the boundary and occupies a certain part of the neighbor's lot, you can pay the neighbor for the occupied area of the lot in order to avoid disputes in future. You may also consult a real estate attorney and clarify further.

Take Care
Posted on: 26th Apr, 2007 04:55 am
What does a novation look like? How is it written, i.e., the words to write?
Posted on: 03rd Aug, 2013 02:21 am
Hi Barbara,

It is for the lender and the attorney to decide what will be the wording of the novation agreement. To know all about novation, you can check out the given page: http://www.mortgagefit.com/know-how/novation-mtg.html .

Thanks
Posted on: 04th Aug, 2013 11:22 pm
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