In a mortgage, What are closing cost for? In general how much are they?

Question

I am new to the world of real estate and am looking to possibly buy a house soon. I was wondering what are closing costs for and how much are they? I am looking at about a $80,000 price range in central KY. Any one know of any resources for people who are pretty much ignorant when it comes to this stuff?

Answer 1

The costs involved in buying a home breakdown into two basic categories: closing costs; the fees paid for services rendered in order to obtain the financing (these include but may not be limited to things like, origination fee, any discount points, title and escrow fees, lender fees, appraisal fee, credit reporting fee, tax service fee, flood certification fee, etc) and prepaid charges such as pro-rated property taxes, home owner's insurance, and any prepaid private mortgage insurance and interest charges.

Of the closing costs, the only things that may be negotible are the origination fee and discount points. The balance are paid to 3rd parties over whose charges the lender has no control. The origination fee is what the lender charges for the time and effort involved in processing your loan request. There are a number of people who do a great deal of work on your file that you never see such as a loan processor, a closer and a funder as well as your loan officer. These people do not work for free. I am certain you are also paid for the work you do. As previously stated, you may be able to negotiate for a smaller loan origination fee but you must be willing to accept a higher interest rate to do so as the amount the lender will be paid by the investor for the higher rate loan will be increased so that they may pay those shepharded your loan through to closing. Whether or not you pay any discount points is totally a personal choice. It may make sense to do so if you are going to recover those costs in the form of payment savings within a reasonable amount of time. Finally, your loan origination fee and discount points will normally be reported on a 1099 which means that you may be able to use them as a deduction on your income taxes to reduce your taxable income for the year resulting in a higher refund.

I've been a mortgage lender for more than 20 years and yes, there are predatory lenders out there who may try to overcharge you in order to increase their profit. Your best protection is to be pro-active. Learn as much as you can and be very selective in choosing your loan officer. This is the person to whom you are entrusting the structuring of what is probably the biggest financial commitment in your life to date.

I'd be happy to fax you some information that may give you the basics so that you can at least get an idea of what types of questions to ask. You may email me at the address in my profile.

Answer 2

Clsoing costs are to pay for fees for services provided by others to complete the transaction. When you apply for a loanyou will get a Good Faith Estimate, this is a break down of the fees, so you know exactly where your money will be going. You will find the following:

Lender fees:
1% origination- You can ask for no origination but the rate will be higher
Underwriting/Processing fees-Approximatley $300-$500
Appraisal fee-$300-$500

Title Insurance or Attorney fees:
Title Search-not sure how much
Title Insurance for Lender and Owner-In some states the seller pays for the Owners Insurance but you will pay for the Lenders.
They will Escrow and/or Collect for taxes and insurance (Escrow meaning you can opt to have insurance and taxes collected with each mortgage payment and have the lender pay them for you when they become due and payable).

This is a very basic breakdown. When you do receive a Good Faith Estimate have the loan officer and the realtor explain all the fees in detail.

Good Luck!

Answer 3

Here is the one thing I can tell you. EVERYTHING is negotiable when it comes to a home loan. When it comes to closing costs there are basically two categories -- points and fees.
Points are basically prepaying the interst down on your loan. So if your loan was going to be for 30 years at 6.5% you could pay a point (which is 1% of the loan amount -- 800 in your case) and get the interst rate down to some numbers like 6.25%. Then there are fees -- document fee, credit check fee, runner fee... THESE ARE ALL MADE UP. The bank makes it's money on the interst rate, and if you go though a broker, they get a comission from the bank. Everyone will tell you "well, these are the fees, that's what they are -- I mean, we can't change them -- look they are right here in the computer". Don't belive it -- you can negotaite them away.

When you are comparing differnt loans the best way to do it is to ask get quotes for the same product (meaning term of loan, and itnerst rate structure) for a given interest rate + the points and closing fees.

So, bank #1 might offer you 6.5% and $3000 in closing fees and points on a 30 year.
Bank #2, might offer you 5.5% on a 5/1 ARM and $2000 in fees and point.

How are you supposed to compare those?
Go back to bank #1 and say -- hey, if I want a 5.5% on a 5/1 ARM, how much will I have to pay in fees and points. Whatever number they give you you can compare.

The key point is get quotes for the same type of loan and same interest rate and then compare the points+fees they charge.

Good luck!
PS -- I live in San Diego, and the cheapest house here is about $300,000 and that is in a really bad area... a decent one costs about $600,000... so $80k you are looking at is not bad!

Answer 4

first of all, you can NOT Negotiate a damn thing, except the origination fee, and possably lawyer fees. i dont know who negotiates UNDERWRITING FEEs, which is usually 1000 dollars, or processing fee's which are about 500, and the title insurance which is about 1000 to 2000, and the taxes, and the homowners insurence. this stuff, cannot be negotiated, and anyone who thinks it can be is completly insane. one time, a client said she did not want to pay the lenders underwriting fee, and wanted a discount. lets just say, that she did't get the loan, because she's a moron, and then she lost her house, because she did not refinance. mortgages are not a friekin' mcdonalds, no you can not have it your way, you cannot pull up to a mortgage drive thru window, and custom order a loan. thats a load of crap. you get what you deserve, and evrybody pays the same costs. period. these things are pre determined, and 98% of these fee's are determined by the loan paramaters, and by the borrowers stats. some of the costs are ESCROWED, this money is still yours (taxes and insurance). its just being held for you in reserve.

Answer 5

usually 2-5% or $1,500- 3,000. Closing cost pays for all the paperwork, legal fees and filing with the lender, county and state. Sometimes when you make an offer on a house add Seller to pay closing cost. So this way nothing comes directly out of anyones pocket (just subtracted from the sellers check before he receives it. Also to persway the seller to do so, offer 83,000 instead or to split the closing cost.

Answer 6

your realtor can explain them to you. Depending on who you use ( a broker or bank) they can charge you for stupid things credit check, application fee, document fee and the remainder of the year's taxes, a year of homeowner's insur, then there is the mortgage tax if your state charges it. A bank will tell you the fees they want and not ALL of the fees.

Answer 7

you are able to acquire presents of as much as twelve,000 with out the giver having to pay present taxes (and make preparations with the giver). in case you like extra, in step with probability a separate present ought to settle for on your spouse, etc. The lender has no project with presents or asset transfers as long as they are in a position to work out a valid paper path. or you are able to in all probability wrap the remaining expenses into the physique of the non-public loan.