Understanding all the costs in purchasing a home can be daunting. In Part One of our blog series about closing costs, we covered costs associated with the loan and lender fees. In Part Two, we’ll focus on the other closing costs you see at closing, who is charging the fees, and some other points homebuyers and those refinancing should know.
BREAKING DOWN YOUR LOAN ESTIMATE
Each section of your loan estimate outlines the different fees that are required at closing. Below we define exactly what is involved with each section of fees.
Taxes And Transfer Fees:
While fees vary state-to-state and county-to-county, this portion of the loan estimate breaks down the taxes levied by state and local governments. Generally, a recording fee is also required to be paid. A recording fee is charged by a government agency for registering or recording a real estate purchase or sale. Real estate transfer fees also apply in most states and is applied for the transfer of title from one party to another. These transfer fees vary and may be charged by the state and the municipality in which the property is located.
PRE-PAYMENTS AND ESCROW PAYMENTS
Homeowners Insurance Premium & Property Taxes:
- Homeowners Insurance is typically paid annually, so to pay your yearly premium we need the full year as part of your closing costs for a purchase.
- Property Taxes are usually paid quarterly, so if they are due the month you are closing, we need to ensure that we have the full quarterly amount.
- If you are escrowing your insurance or property taxes, then most lenders will require a cushion of 2 months to be placed into your account at the time of closing. This ensures that they will have enough to cover the fees if your premium increases over the next year.
- The interest on your loan between the closing date and the end of the current month. ***If you close your loan 10 days before the end of the month then you must pay the daily interest for the remainder of the 10 days.
- Owner’s Title Insurance protects the money you have paid and the equity you have built in the home if title issues come up. This is optional, but strongly recommended.
- Lender’s Title Insurance protects the mortgage lender’s financial stake in the home and is required to have.
- On average, Owner’s Title Insurance can run about $850.
- Any money you have in your current escrow account will be returned to you by the previous holder of your mortgage within 30 days of your closing. Your escrow account is solely for your benefit.
- In most cases when you refinance, you skip 1-2 months of mortgage payments after your closing takes place. That’s a nice bonus on top of the escrow account refund.
Closing costs will vary depending on if it is a refinance or a purchase so consult with your mortgage lender beforehand to understand what will be needed at closing.