If you could pay cash for a home, your total closing cost would be about $60.00...the fee for recording the deed. Because you’ll be getting a mortgage, your closing costs will cover every expense associated with getting a loan. You'll be expected to pay these fees at the closing...the day you take possession of your new home.
Keep in mind that you plan to borrow a great deal of money from an investor that knows nothing about you or the property you intend to purchase. It will be the job of the mortgage broker to provide the lender with details about your personal finances and prove that the home is worth the amount of the loan. To this end, most of the lenders fees will apply to the business of doing the necessary research and related paperwork that will make it possible for you to acquire your loan.
Lender fees cover the cost of obtaining a mortgage. You're repaying the mortgage company for the expense of putting together the package of information the supports your worthiness as a loan risk. The lender and the broker rightfully need to be paid for the expense of setting up your loan.
A lender can charge one, two or more points. Each point is one percent of the loan amount. For instance, on a $100,000 mortgage, one point is $1,000. Generally, you pay points to lower the interest rate on the loan.
Property appraisal An appraisal is an estimate of the value of a property, made by a qualified professional appraiser. Because the home you are purchasing will serve as collateral for the loan, an appraisal of the property is a critical factor in determining how much of a mortgage the lender will approve.
The appraiser is chosen by the mortgage lender and looks at your home in two different ways to determine its value. First, what it would cost to rebuild the home. Second, how the home compares to other properties of similar size, quality, and location that have recently sold.
You may be offered a smaller loan, or even refused a mortgage, if the appraisal falls short of the amount you wish to borrow. You may have to make up the difference with a larger down payment, or re-negotiate the sale price with the seller.
What it costs to establish and transfer ownership of the property. You must provide the lender with title insurance. This policy guarantees you, and your lender, that you have clear financial interest in the property. It checks for any defects, liens or encumbrances on the property that may affect the rights of ownership, possession, or use of the property. It is issued after a complete examination of the public records. It also insures against such things as forgery, fraud, missing heirs or divorce actions.
The lender will require that money be placed into special escrow accounts to ensure that taxes and insurance premiums are paid on time. The lender will pay your taxes and insurance premiums when they become due. Federal law limits the amount of "cushion" to two months of escrow payments.
These are not fees, but charges due at closing
For instance, you'll need to pay interest from the day you close until the first of the next month. Should you close on the 20th day of a month containing 31 days, you'll need to bring 11 days of interest to the closing.
The lender will expect you to insure the property against loss due to an unforeseen hazard. So you’ll be required to purchase a homeowner’s insurance policy, and flood insurance if your new home is located in a flood plain.