The overall costs of closing a real
estate deal usually include the following
types of fee: Title & escrow fee,
lender fee, points (which is optional),
appraisal fee, credit fee, insurance
and property related taxes etc.
According to your purchase contract,
it is the contractually determined party
that will be paying for the various
costs involved in the purchase transaction,
e.g. the big ticket closing costs, escrow
fee, the title fee, and the transfer
taxes (kindly refer to your purchase
contract). It is the location of the
property (in a certain county) that
would be the decisive factor for determining
this party. It will be decided by the
local customs of the relevant county.
Various counties have got different
customs regarding this, according to
some, it is the buyer that pays for
these expenses, another may require
the seller to do so, yet another may
require the fee to be divided and paid
equally by both the parties. Sometimes,
some builders may not pay for these
expenses in spite of the county custom
asking him to pay for it, especially
in the context of a new construction.
In this case, this would be decided
by the current market scenario. Therefore,
it is a must for you to be alert about
both the things, e.g. the custom of
the county where the property is located
and be absolutely aware about every
single detail written in your contract
(especially about the fee that you have
agreed to pay according to your contract).
Title
& Escrow Fees
This fee includes the escrow fee and the
policy of title insurance for both the
owner and the lender. Title insurance
does the protection job for both the buyer
and the lender (against fraud and forgery)
by insuring a clear chain of title. This
goes to ensure that the people concerned
in this process are indeed the people
with the legal right to convey title to
your property. Apart from this there are
some policies as well, that protect against
possibilities of fraud and forgery.
The
escrow fee is in fact a kind of service
fee charged by the title company. The
company charges this fee for acting as
an independent third party that actually
facilitates your transaction and ensures
that all the concerned parties to the
transaction process function exactly the
way the contract requires them to.
There
are other types of title fee as well such
as the fee to notarize the loan documents
(known as the notary fee), the fee for
recording the deed of trust with the county
recorder's office (i.e. the recording
fee), and the fee for various other charges
e.g. drawing, courier and express mail
etc.
Provide
your title company (that is handling your
purchase) with the purchase price and
the requested loan amount and they will
issue an accurate fee quote to you (according
to your transaction).
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Lender
Fees
It is known by different names and is
generally known as the "garbage fee".
It’s a fee charged for the processing
and funding of the loan by the lender.
The lender charges this fee for underwriting,
processing, fulfilling administrative
requirements of the loan process, preparing
the relevant documentation and ultimately
funding the loan. Other types of lender
fee are known as wire, tax service fee
and flood certification fee. Virtually
all the lenders charge this fee and it
ranges approximately $650 - $850 in terms
of the total charges.
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Points
Points usually fall into two categories,
discount fee and origination fee. Discount
fee is the prepaid interest that a borrower
elects to pay up front to buy down the
interest rate down on the loan. An origination
fee is also used to buy the interest rate
down but is used to pay/compensate the
loan originator in the transaction, rather
than accepting a higher interest rate
where the lender funding your loan compensates
the loan originator.
A point
is equivalent to 1% of the loan amount
(i.e. one point on a $100,000 loan = $1,000).
They usually come into 2 categories, e.g.
discount fee and origination fee. Discount
fee is in fact a kind of prepaid interest
that is paid up front to buy down the
rate of interest on your loan. An origination
fee is also used for the similar purpose
except that it is used to compensate the
loan originator so that the rate of interest
can come down. When the lender compensates
the loan originator, the rate of interest
is usually higher .
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Appraisal
Fees
It is the possible use and the type of
property involved (i.e. single family
vs. duplex or any other type and the way
it is going to be used i. e. whether the
property will be owner occupied or used
as an investment property), will determine
the fee an appraiser charges to inspect
your property. The usual fee for an average
owner occupied single family home, a condominium
or a townhouse is somewhere between $300-$400.
Generally, a rental survey is required
in case of an investment property and
an operating income statement is to be
completed with the appraisal (this can
add an additional $200-$300 to the overall
cost of the appraisal). If you want to
buy a new construction, the appraiser
might be required to go back to the property
once again to complete the final round
of inspection (it is referred to as a
442) to ensure the completion of the construction
on schedule. This fee may cost you an
extra $75-$100.
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Credit
Fees
The fee for your credit check using three
credit bureaus (this is the way the lenders
need it to be) ranges somewhere around
$25-$65 per person or per couple. The
cost could be a little higher if your
credit report has some errors on it. The
credit reporting company may charge you
extra for correcting these errors.
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Insurance
Fees
In case your targeted property does not
have a homeowner's association (it is
usually noticed in case of condominiums
or townhouses), it’ll require a
master policy for homeowners or hazard
insurance that you’d need to buy
on your own. This policy of homeowners
or hazard insurance becomes necessary
for you to buy because all the lenders
require it at the time the loan is closed.
And this could vary amongst various lenders.
The lender will usually ask you to buy
these policies to cover hazards such as
an earthquake or a flood, if your property
happens to fall in a geological hazard
zone.
Such
hazard zones are notified by FEMA. It
is the appraiser’s job to refer
to the latest FEMA geological hazard map
and determine whether your property is
located in such a zone. Everybody needs
to be aware of such hazard zone classifications
including the real estate agents handling
the transaction as well as the seller
of the property.
If you
require it, make sure you check it with
your insurance carrier or an agent dealing
with homeowner's or hazard insurance.
For a flood insurance quote, you can contact
The National Flood Insurance Program (at
800-638-6620), if the need arises.
If only
one lender is financing more than 80%
of the value or purchase price of the
house, you may need to have mortgage insurance
on your loan as well. This fee can either
be financed on a per month basis or charged
lump sum at the time of closing. There
are ways to avoid mortgage insurance either
by choosing an ‘80-10-10’
option or going for an ‘80-15-5’
down payment strategy (please refer to
down payment options for details).
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Taxes
There are some other taxes that may be
due at the time of sale. These taxes are
different from the property taxes, which
are pro-rated at the time of closing (between
the buyer and the seller). These taxes
comprise the county taxes and the city
transfer taxes. Again, it’s the
purchase contract that will determine
the terms responsible for paying the transfer
taxes (much like the title and escrow
fee) and this would be based on the relevant
county customs (although this is not found
in case of all the counties and cities).
Please refer to your purchase contract
for more clarity on this. The contract
will determine as to whether it is required
in your case or not and then single out
the party responsible for paying this.
You
need to contact your title company for
a transfer tax quote, if it is established
that this fee is indeed required in your
case. These taxes are based on the purchase
price of the home/property you plan to
buy. They can cost you from $1.10 per
$1,000 (in purchase price) for county
transfer taxes to $3.30 per $1,000 for
city transfer taxes. Roughly, on a property/home
with a $200,000 purchase price, county
transfer taxes of $220 would be due while
the city transfer taxes would cost $660.
.
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