One of the most frequently asked questions homebuyers have is, “how much money will it take to get me into my new home?” Closing costs, or the fees associated with buying and selling a home, can be broken into three basic categories. The first includes origination costs such as the application fee, credit report fee and preliminary processing fee. The next category includes escrow costs, when you are under contract, but prior to closing. Final costs appear at the closing table.
Your Loan Officer can help you come up with creative ideas to minimize closing costs. For example, you may want the seller to pay the closing costs. On the other hand, if you decide to have the lender pay these fees, rolling the costs into your loan amount, the interest rate may be higher. Your Loan Officer will assist you in considering the available options to negotiate the best deal possible
Some typical closing costs are outlined below for demonstration purposes. Not all closing costs listed below will apply to you. There may be additional costs that are not mentioned below. Your Loan Officer will discuss specific costs that apply to your loan with you.
Commission
Typically, the seller will pay commission fees to the real estate agents who represent both the buyer and the seller.
Property Taxes
The seller must usually pay property taxes until the last day of ownership.
Homeowner’s Insurance
Prior to the close of escrow (COE), the buyer must obtain a homeowner insurance policy that protects the property in case of a natural disaster.
Assessment and Liens
Any assessments or liens on the property (such as tax liens, judgments, etc.) need to be paid or resolved before the close of escrow (COE). This is also the seller’s responsibility.
Title Insurance
This extended policy, based on loan amount only, covers unrecorded liens and is required by almost all lenders. The cost is determined from an established rate schedule used by the title company. The financial responsibility for title insurance varies from county to county. In some areas, the buyer is responsible, while the seller bears responsibility in other areas. The buyer and seller may also agree to a 50/50 split.
Escrow Services
Escrow fees vary from $300-$1,100, depending on the purchase price of the home. These fees are normally split between the buyers and sellers in the state of Arizona.
Tax Service Fees
A charge of approximately $75 is made by a tax service company to verify to the lender that the taxes have actually been paid when due, or are due to be paid by the borrower or mortgage company if impounding.
Prepaid Interest
Interest must be paid from the close of escrow (closing date) to 30 days prior to the first regular mortgage payment. An estimate of one month interest should be adequate.
Mortgage Insurance
This insurance is required on all conventional loans greater than 80% the value of the property, and provides coverage for the lender in case of default.
Tax Impounds
If the new loan is going to have an impound account, the lender will require from 2 to 10 months taxes to be deposited, depending on the time of year. If taxes are prorated, the buyer’s total charge for taxes should equal about 6 months taxes.
Miscellaneous Costs and Fees
An estimate of $250 should be adequate to cover minor items such as a notary, recording documents, endorsements, etc. as well as, allowing for variations from these other estimates.