What Are All These Closing Costs We Keep Hearing About?

When you finally find the St. Clair home of your dreams, make an offer and get an acceptance, it's just the beginning of paying for your new house. Closing costs are generally paid during the time of getting the mortgage for your home or on that final day when you sign all the paperwork to make the mortgage yours! Look for them to be from 3 to 6 percent of the home's price.

1. Title Search and Insurance Fees: The title search is generally done by an escrow company, an attorney or a title company, and it ensures that the seller is the legal owner and able to sell the property, as well as verifying that there are no outstanding liens against the property. Title insurance is protection for the lender only (not the buyer or the seller) against any errors made in the title search.

2. Appraisal Fee: Per the lender's requirement, an appraiser will be hired to complete an appraisal of the property to determine its value. This ensures that in the appraiser's educated opinion, the house is worth at least as much as the loan amount.

3. Credit Check: This is to verify the buyer's credit history and credit score.

4. Flood Certification Fee: This is paid to a third party to determine if the property is in a flood zone. If it is, you will need to purchase flood insurance in order for the lender to give you a loan on the property.

5.  Homeowner's Insurance: This is insurance to protect both the new owner and the lender from financial damage due to fire, vandalism, etc. While you probably won't pay it as a "closing cost", you will need to prove to the lender that you have it in effect.

6.  Inspection Fees: These are not required but highly recommended to protect the buyer from buying a property that has unseen problems. The inspection should include a check of the home's plumbing and electrical systems, heating and cooling systems and structural components.

7.  Points:  Points are a one-time optional charge paid to the lender to reduce the interest rate of your mortgage.

8.  Loan Origination Fee:  Also called a processing or administrative fee, this is a fee charged by the lender to process your loan.

9.  Private Mortgage Insurance (PMI):  If you don't have a down payment of at least 20 percent of the purchase price, the lender will put this coverage on the loan to protect themselves in case you don't make your mortgage payments.

10. Prepaid Interest:  Although your first mortgage payment will probably not be due for at least a month after closing, interest charges start the day of closing and will be prorated through the end of the month you close and added to the closing paperwork.

It's good to know about these fees and charges before you get to closing, so you have the necessary funds available to pay for them. Rest assured, as your Realtor®, we know about all the necessary paperwork and will help make it as painless as possible. Call me, Scott Hickinbotham, today at 636-629-3419 or contact me online to help you buy, sell and close on a St. Clair area home.