What are Closing Costs?
Closing costs are the expenses related to a property that sellers and buyers usually incur for the completion of a real estate transaction. It is, in simple words, a fee that is brought in addition when purchasing a home. Closing costs include loan-processing costs, discount points, excise taxes, credit report charges and other miscellaneous fees. Closing costs are also included in the title insurance and in the mortgage agreement.
Closing costs are divided into two main categories: prepaid and nonrecurring costs. Prepaid costs are the costs that have to be paid periodically, such as homeowners’ taxes and property taxes. On the other hand, nonrecurring costs are onetime charges when you are opting for a loan or buying a property. Costs like these are estimated by lenders using a method known as “good-faith estimates” in which lenders issue the borrowers a home loan application within three days.
Closing Cost Estimate
Closing costs vary according to the loan program the buyer goes with and also these costs can be negotiated by whoever pays the costs. The various types of closing costs include appraisal fees, inspection fees, prepaid property insurances, pro-rata homeowner association dues, property taxes and interests. To get an estimate of other types of closing costs, here are some expenses usually incurred:
Lawyer fees are incurred for the recording and preparation of official documents of the house or property, and title insurance.
Recording fees are charged to the buyer of the property for the change of owner’s name in the original documents of the property as required by the federal authorities.
Title costs are paid by the buyers, which include title services such as, title search and title insurance.
Document Stamp Fees
It is charged by the government for the stamps and taxes required by law which are included in the official documents of your property.
Brokerage commissions are paid to the broker who helped you find the property and also assisted with the process of closing the transaction.
These are the charges which you may pay for a few months to cover the mortgage insurance and property tax.
Title Search Fees
This is the fee you pay for a check on the title to avoid issues such as tax liens and unpaid mortgages on your property.
These are the fees which you pay in exchange for a lower interest rate on your credit card.
How to Avoid Closing Costs?
It is true that when buying a house or property all these costs are included. To avoid all these closing costs, you can go for a no-closing cost mortgage in which you don’t have to pay any kind of closing costs when you close your mortgage. Secondly, you can also directly deal and negotiate with the home seller about the price of the house and who will pay the closing costs. Thirdly, make sure you find the best interest rate and the lowest fees. Fourthly, before making any commitments make sure to review your ‘good-faith estimate’. Last, but not the least, you can also opt for a no-point mortgage to avoid buyers closing costs.
So, now that you know about closing costs and its estimates and on how to avoid these costs, you can make sure that you can close your real estate transaction without incurring any extra expenses.