July 5th, 2012 9:59 AM by Bob Rutledge
Closing Costs - What Are Closing Costs?
With every home loan either to buy your next new home or to refinance your current home there are associated closing costs involved. What are Closing Costs, How Much are Closing Costs, and Who Pays for the Closing Costs are the 3 questions I am asked the most regarding this subject.
WHAT ARE CLOSING COSTS?
In nearly are mortgages transactions I divide closing costs into 3 separate categories:
Lender Closing Costs: these are the closing costs that are associated with fees that the lender will charge. Lender fees will vary between lenders, the loan, the borrower, the mortgage program. But normal lender fees will be appraisal, credit report, origination, processing, underwriting.
Normally, I only charge for the cost of the appraisal and a flat origination fee that covers all other costs incurred for the origination, processing, underwriting, and closing of your home loan application. Every lender will be different, but for the most part I never see a large difference in closing costs among local lenders.
Title Costs: these are the fees and costs associated with the work that your chosen Title Company charges you for work such as title insurance, title examination, clearing titles, recording, title survey coverage which may require a survey of your property.
Pre-Paid items / Escrow Account: this portion of closing costs will include the payments required to establish a new escrow account for taxes and insurance, per diem interest, one year of home owners insurance. This is one of the most misunderstood of the 3 closing costs and can be the highest of the three depending on time of year and type of loan.
HOW MUCH ARE CLOSING COSTS?
As a lender I only know what I charge for any loan, this is especially true at the very beginning. Asking a lender what are their closing costs will either lead you astray as they may quote their lender costs or it may scare you if they try to estimate the costs.
At the start we must provide you a Good Faith Estimate of your closing costs and most of us who have been doing this for a long time will be able to provide you a very accurate estimate. Once a good loan officer knows what's needed to make that estimate then you will have a very solid estimate.
WHO PAYS FOR THE CLOSING COSTS?
There are several entities that can pay for your closing costs, but here are the 5 main sources to pay for your closing costs:
You: well that's easy to explain, you have the money and you provide the funds at closing.
The Seller: this only applies when you are purchasing your new home. Along with negotiating the sales price also include a seller concession for a portion or all of your closing costs.
The Lender: I have helped many a home buyer or owner with their closing costs by picking up a portion or all of their closing costs. Please understand there is no such thing as a FREE REFINANCE or NO CLOSING COST LOAN! Every single mortgage transaction has some closing costs involved.
When a lender picks up your closing costs they do it through premium interest rate pricing. Together you and your loan officer must do the math to determine if this best method of covering your closing costs.
Gift: This method happens a lot with first time home buyers.
Down Payment Assistance: There are several programs available in the State of Missouri that provides funds to qualified home buyers for help with the costs of purchasing a new home.
A combination of all or any of these methods for securing your closing costs (some of these work for down payment too) can help you to keep your money in your pocket. Your money in your pocket will do you much more good when you are buying a new home.
I WANT TO HELP YOU
I work with many home buyers every month who are looking to secure their next new home with as little out of pocket expense as possible. I would appreciate the opportunity to do the same for you.
If you want a FREE REFINANCE or NO CLOSING COST REFINANCE I will help you with that, but first expect an explanation and cost break down so YOU can determine if this is the best means to an end for you.
If you have questions please feel to contact me.