What Are Closing Costs?

canstock photos -alexkichYou've found your dream home - Check!

The seller has accepted your offer - Check!

Your loan has been approved - Check!

You are now eager to move into your new Sienna home. But before you get the key, there's one more step -the closing. 

Also called the settlement, the closing is the process of passing ownership of property from the seller to the buyer. It can be confusing. As the buyer, you will sign what seems like endless piles of documents and will have to present a sizeable check for the down payment and various closing costs. What are closing costs? These are the fees associated with the closing, or settlement, that are both mortgage-related and government imposed.

As a responsible buyer, you should be familiar with these costs.  Although many of the fees may vary by locality, here are some common fees:

Appraisal Fee: Self explanatory, this fee pays for the appraisal of the property. You may have  already paid this fee at the beginning of your loan application process.

Credit Report Fee: This fee covers the cost of the credit report requested by the lender. This too may already have been paid when you applied for your loan.

Loan Origination Fee: This fee covers the lender's loan-processing costs. The fee is typically one percent of the total mortgage.

Loan Discount: You will pay this one-time charge if you have chosen to pay points to lower your interest rate. Each point you purchase equals one percent of the total loan.

Title Insurance Fees: These fees generally include costs for the title search, title examination, title insurance, document preparation and other miscellaneous title fees.

PMI Premium: If you buy a home with a low down payment, a lender usually requires that you pay a fee for mortgage insurance. This fee protects the lender against loss due to foreclosure. Once a new owner has 20 percent equity in their home, however, he or she can normally apply to eliminate this insurance.

Prepaid Interest Fee: This fee covers the interest payment from the date you purchase the home, to the date of your first mortgage payment. Generally, if you buy a home early in the month, the prepaid interest fee will be substantially higher than if you buy it towards the end of the month.

Escrow Accounts: In locations where escrow accounts are common, a mortgage lender will usually start an account that holds funds for future annual property taxes and home insurance. At least one year in advance, plus two months worth of  the homeowner's insurance premium will be collected. In addition, taxes equal to approximately two months in excess of the number of months that have elapsed in the year, are paid at closing. (If four months have passed, six months of taxes will be collected.)

Recording Fees and transfer taxes: This expense is charged by most states for recording the purchase documents and transferring ownership of the property.

Your Sienna real estate specialists will help you find out which fees - and how much - you will be expected to pay during the closing of your prospective home. Keep in mind that Sadler Realty can help you negotiate these costs with the seller during the offer stage.