The Closing
It's time to close. Keep a few issues in mind when you and your agent set the date: When does your current lease expire? Try to coordinate the closing so that you can go directly from your current dwelling to your new home. Try to close at the beginning or end of the month. That way, you won't have to pay one-half month's interest at the closing; you can simply include the first installment with your first mortgage payment. If your negotiations stretch into the end of the year, you may get tax advantages by closing before New Year's. Check with your tax advisor.
You are about to become a homeowner. But before you get too excited, remember that this designation carries an immediate price--closing costs. These can range from 2 percent to 7 percent of the purchase price. You should have received a list of closing costs from your lender. Scrutinize it carefully before you head over to the closing. Make sure you can cover each expense. You may have to pay for as many as 20 different items, everything from a loan application fee and inspection fees, to discount points and prepaid interest.
Ask if you need cash, or if a personal check or bank check will suffice. You may simply give your attorney or agent one check; then he or she will divide it up accordingly.
Your closing payments may leave you cursing the day you decided to buy a home. The biggest portion of that payment will probably go into the escrow account your bank sets up to pay monthly hazard insurance, real estate taxes and interest on your property. At the closing, you will have to deposit about three months worth of payments.
In addition, there's a mortgage application fee, anywhere from $100 to several hundred dollars. An appraisal fee of $150 to $300 covers the fee charged by the person who appraised the home's value. Believe it or not, you must pay the bank's attorney, even though he represented the bank, not you. The credit report fee, which usually runs about $50, is the fee banks charge to review your credit. The origination fee comes from the company that processed your application.
Dizzy yet?
Wait, there's more. Points will be an important expense at closing because they lower your monthly payments. By paying for points-each will cost you one percent of the loan amount--you are prepaying interest. Next comes a brief respite--an expense that someone else has to pay. The seller must pay the real estate broker's commission, which usually runs from 5 percent to 7 percent of the selling price (see Step 4 in Getting Started for the difference between a Buyers Agent and a Sellers Agent).
Then it's time to reach back into your pocket for the lender's inspection fee. This covers the lender's cost of inspecting your home. You will also be required to pay for a title search and title insurance, which can cost you $500 to $1,000. The search ensures that the property does, in fact, belong to the seller. It eliminates the possibility of liens, unpaid mortgages, judgements or other impediments on the title. There's just one caveat; the title insurance policy required by lenders covers them, not you. You'll have to get your own coverage, called fee title insurance. If you're assuming the seller's mortgage, you will also pay an assumption fee at closing.
Finally
There are document preparation fees. But not so fast-you may be able to have those waived. Lenders sometimes tag on a blanket fee for all services. So ask what the document preparation fees cover; you may have already paid them. Some of these costs may be paid prior to closing, but all of them will be listed on your closing statement. |
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