The second part is the remainder of the down payment which you give the lender when you make the purchase at closing. The down payment and closing costs have a few things in common. Do closing costs include down payment monies? Not usually.
Typically, you as the homebuyer will need to produce the down payment cash from your own savings, though this is not a hard-and-fast rule. But they are separate entities and each perform a different function when purchasing real estate.
The down payment. The money that makes up the down payment must be paid during the home buying process. Whatever money is paid out as either earnest money or a down payment is deducted from the purchase price of the home.
And the amount that remains will typically get folded into your loan. Notary: This fee is charged for the cost of having a person who is licensed as a notary public swear to the fact that the persons named in the documents did, in fact, sign them. Attorney fees: Both the homebuyer and the seller might have their own legal representation to prepare and record legal documents. Frequently, however, where an attorney is acting as a settlement agent, there may only be one involved in the closing.
Who pays for those services is a matter of contract negotiation. Recording fees: These fees may be paid by you or by the seller, depending upon your agreement of sale with the seller. The buyer usually pays the fees for legally recording the new deed and mortgage.
Prepaid interest: This is money you pay at closing in order to get the interest paid up through the first of the month. Property taxes: Usually six months of county property taxes. Home warranty: Fee for an insurance policy to protect you from cost of unexpected failures to the major systems and appliances in your home. There's also an annual MIP payment due monthly that can range from 0. This is a fee paid to a certified flood inspector. The inspector's job is to determine whether the property is in a flood zone and requires flood insurance separate from your homeowners insurance policy.
Part of the fee includes ongoing observation to monitor changes in the property's flood status. If you buy a condominium, townhouse, or property in a planned development, you may be required to join that community's homeowner association HOA.
This is the fee that covers the costs of switching ownership, such as updating documents. Whether the seller or buyer pays the fee may not be spelled out in the contract, so you should check in advance.
The seller should provide documentation showing HOA dues amounts and a copy of the HOA's financial statements, notices, and minutes. This is a fee paid to a certified inspector to determine if the property has hazardous, lead-based paint. Some lenders do not charge origination fees but instead charge a higher interest rate to cover those costs. This policy protects you in the event that someone challenges your ownership of the home.
It is usually optional but highly recommended by legal experts. This is a fee covering the cost of a professional pest inspection for termites, dry rot, or similar damage. Some states and some government-insured loans require an inspection. Points or discount points are an optional, upfront payment to the lender to reduce the interest rate on your loan and thereby lower your monthly payment.
At a time when mortgage interest rates are already low, paying points might not save you much money. A payment to cover any interest that will accrue on your mortgage from the date of closing until the date of your first mortgage payment.
This is a required fee paid to a professional property appraisal company to assess the home's fair market value and determine your loan-to-value LTV ratio. At closing, expect to pay any local property taxes due within 60 days of the home purchase. This is an optional fee charged by the lender for guaranteeing you a specific interest rate for a limited period, typically from the time you receive a preapproval until closing.
A rate lock protects you against a sudden rise in interest rates. This is a fee charged by your local recording office, usually city or county, for the recording of public land records. This is a fee charged by a surveying company to check property lines and shared fences to confirm a property's boundaries. These are third-party fees to keep tabs on your property tax payments and notify your lender of any issues with your property tax payments, such as late or failed payments.
Title search fees are fees charged by the title company to analyze public property records. The title company searches those records to ensure that there are no outstanding ownership disputes or liens on the property.
This is a tax levied by the state or local government to transfer the title from the seller to the buyer. An underwriting fee is charged by the lender for verifying your financial information, income, employment, and credit for final loan approval. The amount of the fee depends on your military service classification and loan amount; the fee can be paid at closing or rolled into your mortgage.
Some military members are exempt from paying the fee. Real estate commissions represent one of the highest costs at a typical closing. The cost varies geographically. Underwriting fees are charged by the lender for the work that goes into evaluating your application and approving your loan.
Underwriting is the research process of verifying your financial, income, employment, and credit information for final loan approval. The amount of the funding fee depends on your military service classification and loan amount.
It can be paid at closing or rolled into your mortgage. Some military members are exempt from paying the fee. However, there are ways to negotiate these fees.
This applies to lenders and third-party services, such as homeowners insurance policies and title companies. Do your homework and you could save some serious cash on those fees. A closing date near or at the end of the month helps cut down on prepaid daily interest charges. A lender can run this scenario for you to figure out how much you might save. This is more likely if the seller is motivated and the home has been on the market for a long time with few offers.
When you get your initial loan estimate, review it with a fine-tooth comb. Likewise, if you notice new fees or see noticeable increases in certain closing fees, ask your lender to walk you through the details.
Ask the lender to remove or reduce fees if you notice duplication. Comparison shopping can be your ally in reducing closing costs, as well as finding competitive terms and rates. Be especially wary of excessive processing and documentation fees in the following areas:.
In some instances, lenders will offer to pay your closing costs or roll them into your loan. Do this only as a last resort. Closing costs are unavoidable when you buy a home. If you take proactive steps to shop around and closely analyze your loan estimate with your closing disclosure, you could save big bucks on those fees.
As you start saving up for a down payment, set aside enough money for closing costs as well. Remember that some areas of the country have higher closing costs than others. Above all, be your own best advocate.
As you shop around, ask lenders to outline the fees they charge and try negotiating them down whenever possible. Quicken Loans. Accessed Jan. Levin Law Group.
GPS Law Group. American Financing. Rocket Mortgage by Quicken Loans. Department of Housing and Urban Development. Consumer Financial Protection Bureau.
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