Home Loan Closing Costs
Closing costs are costs that are separate from and in addition to the down payment on a home.They can run from 2 to 5 percent of the price of the home. Thus just having enough money forthe down payment won't be enough, you will have to also budget for closing costs. What actuallyconstitutes closing costs varies from state to state, however the most common ones are given below:
Loan origination fees
These fees generally run about 1-2% of the loan amount. The fees are for the lender to makethe funds available to lend. It is possible to find a loan with no loan origination fee,however the interest rate will be higher over the lifetime of the loan.
Escrow fees deal with the lender's task of preparing the documents for the loan. The escrowfee itself can range from a few hundred dollars to over a thousand dollars, depending onthe price of the home.
Title insurance protects the lender and yourself from the chance that the seller doesn'tactually own the home they are selling. The premium paid when you close is onlypaid once, unless you refinance.
In some states, usually on the east coast, lawyers are involved in the purchase of realestate. If you do need to hire a lawyer the cost can be several hundred dollars.
Private mortgage insurance
If the down payment on your home is less than 20% of the purchase price, the your lenderwill insist you get private mortgage insurance. Private mortgage insurance protects thelender in case you can't make the payments.
Home owners insurance protects your home from unforeseen events that may occur. However,be sure to read the policy carefully, sometimes certain events are not covered. At closingyou may be required to pay up to a year's premium. Homeowners insurance can run from severalhundred to over a thousand dollars, depending on the price of the home and how extensive thecoverage.
It is always a good idea to have the home inspected professionally before purchasing it. The cost for professional inspections will be around several hundred dollars.
When you close your home purchase, the seller may have already pre-paid for property tax, andsince you will be acquiring the home before the end of the pre-paid payment is over, you mayhave to reimburse the seller for the rest of the paid property tax. Here's an example:Suppose you purchase a home on July 17, and the seller had already paid the property taxthrough December 31, then you would have to reimburse the seller for the amount of pre-paidtax from July 17 to December 31. Actual property taxes are based on the home's purchase date,and can be between several hundred to a couple thousand dollars.
Prepaid loan interest
Upon closing you will be charged interest that will accrue from the date the loan is granteduntil the date of the first payment. Ideally if you don't have money to pay for prepaidinterest, then you should try to coordinate the granting of loan to the date of first payment,by doing this you will end up paying less prepaid interest.
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