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Though technically not an actual step in the process of buying a home, knowing what closing entails and what costs are involved can be extremely helpful to getting through closing without stressing over it. With many players being involved in the transaction, you’ll probably feel a bit overwhelmed at times, watching the costs of closing rise, seemingly, each and every day. The fees that should not surprise you include the following:
Appraisal fee – Paid to the appraiser for his evaluation of the property required by the lender.
Credit report fee – When you applied for your home loan, the lender requested a full credit report. These reports cost money and the lender is asking you to pay for it.
Loan origination fee – All that loan-processing paperwork costs money. The typical fee for processing your loan is one percent of the total mortgage.
Loan discount – Applicable if you chose to pay points in order to lower your interest rate. Each point equals one percent of the total loan.
Title insurance fees – The title company has already performed all the legally required paperwork that is needed by the closing date. This fee covers the cost of the title search, title examination, insurance, documentation and any other expenses incurred.
PMI premium – If you paid less than 20 percent down on your new purchase, it’s likely that your lender will require you to carry mortgage insurance. The PMI premium is the initial cost of this insurance that you will pay every month.
Prepaid interest fee – Covering the interest payment from the date of closing until your first mortgage payment, this fee adjusts to the amount of time between the two. Therefore, if you close at the beginning of the month, your fee will be much higher than at the end of the month.
Escrow Accounts – Though not common in all areas, some mortgage lenders start these accounts to hold funds for future annual property taxes and home insurance. Ask about these costs if required at the time of your closing.
Recording fees and transfer taxes – Most states charge these fees to transfer ownership of a property and to record the purchase documents.
Every fee or expense charged to you at closing should be disclosed to you by your real estate agent during escrow. Don’t forget that closing costs can be used as negotiation points in your offer, some even offer to pay all closing costs so don’t be afraid to ask. Consult with your agent about when is the best time to do so.