If you are feeling a bit lost when it comes to the loan process, don't worry. I am here to briefly explain at least this portion of it. The onset of technology has allowed us access to a wealth of information from every aspect of business and life. Well in many cases the material can be outdated or may not even apply to your particular situation. When you apply for a loan, every situation is unique so try not to compare your situation to your neighbor or your friend. Remember, many people don't like to tell their personal business especially when it comes to finances. Loan products have many characteristics to consider such as credit score, job history, money on hand, retirement accounts if applicable etc. Believe or not even the banks are different. One bank may require one thing, but the other may not. One bank will probably only accept 620 credit scores and above while the other may not. Remember the key word UNIQUE.
My discussion today relates to closing cost. What is it?
Well closing cost is how your lender and a few others related to your loan get paid. I will go over some general closing cost fees with you and this will help you prepare financially for your home purchase.
Some fees include
Loan origination = generally 1% of your loan amount
Title company= third party closing facilitator and insures your title. Fees are published based on sales price. For example, a $200,000 home title insurance would cost about $1377. (in many cases you can ask the seller to cover this fee) In addition, the closing fee could range up to 400 dollars on average that the buyer and seller will both pay the closing agent to assist with the closing.
appraisal fee $ on average about $450.00
prepaid interest (this is based on when you close on your home, you will usually pay the interest for the remaining days of the month
Escrow establishment ( applicable to those that will escrow) Many lenders will collect 1 year of homeowners insurance and 4 months of property taxes up front. Once again this depends on the lender but almost all of them will collect 1 year of homeowners insurance up front
Loan processing fees - average $500 dollars
misc lender fees- pulling flood certificates, underwriting expense etc. average $400.00
loan discount points (optional)
Transfer fees for homeowners association average $200.00
State and county fees $20 dollars
Lenders Title policy fee ( buyer will pay this fee) average $800.00
So as you can see, closing cost can get up there and this does not include down payment.
Lets look at a 200k loan
home insurance$ $1400.00
appraisal fee $450.00
Loan processing $500.00
4 months of taxes $2000.00 ( based on $6000 per year)
title fee $400.0
government fee $20.00
misc lender fees $400.00
Lenders title policy $800.00
HOA transfer fee $200.00 = $8170.00
Now this scenario is assuming that you establish an escrow account which is required with an FHA loan.
Also, remember that you can always negotiate in your real estate contract with the seller as well to offset some of the out of pocket expense with closing cost. If you are refinancing, you may have the option to include some of this cost in your loan amount.