| Fees on a mortgage cover almost
every cost associated with getting a loan. You’ve
already encountered fees upfront for a credit
report and a property appraisal.
But there are many more fees that you will be
expected to pay at closing or settlement, which
is generally 30 to 60 days after finalizing the
sales contract. These closing costs are outlined
in the "good faith estimate." The Real
Estate Settlement Procedures Act requires every
bank or mortgage company to give the buyer the
estimate within three days of applying for the
loan. It will list expenses related to inspections,
taxes, title insurance and a host of other charges.
You also should receive an information booklet,
"Settlement Costs -- a HUD Guide."
The best approach is to get a copy of the good
faith estimate before you make a commitment to
any lender.
Typical closing costs
Here is a list of typical closing costs. In general,
closing costs amount to 3 percent to 6 percent
of the sale price. Note items with an asterisk
(*) are explained below. For an estimated price
range, see the separate table of closing costs.
• Loan application fees and credit report
• Title search and insurance fees *
• Lender’s attorney fees
• Property appraisal
• Inspections
• Survey
• Recording fees
• Transfer taxes
• Buyer’s attorney
• Documentary stamps on new note
• Points and origination fees
• Condominium application fee
• Escrow account balances/prepaids*
Title insurance
This is a policy that insures against errors in
the title search, essentially guaranteeing you
and your lender’s financial interest in
the property. It checks for any defects, liens
or encumbrances on the property that may affect
the rights of ownership, possesion 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. Keep in mind that the required
title insurance protects the lender. You may want
to take out an owner's title insurance to protect
yourself.
Savings tips: You may be able to lower the cost
of title insurance if the home you're buying hasn't
been owned for a long time by the seller. The
insurer may be willing to give you a re-issue
rate, hence lower a premium, if there have been
no claims against the title since the previous
title search was done. If both you and the seller
are getting title insurance, you can save by using
the same title insurance firm. The cost will be
lower since the insuror researches the property
only once for both of you.
Escrow
At closing you may have to put aside money into
special escrow accounts to cover other costs associated
with buying a home, such as private mortgage insurance
(PMI), property taxes and homeowner’s insurance.
This will ensure that taxes and insurance premiums
on the property are paid on time. Federal law
limits the amount of "cushion" to two
months of escrow payments. Be sure to ask the
lender what escrow payments will be required at
closing. Some mortgage companies may waive escrow
requirements if you pay more points or a higher
interest rate
It is important to review the estimate of closing
costs and to ask questions about fees that seem
unfamiliar. Lenders differ and can get creative
when it comes to other types of charges.
Savings tips: Fees for some standard items, such
as appraisal, credit report and title insurance
should be almost the same at every lender. The
same goes for payments to local governments, such
as documentation stamps and recording fees.
A bank or mortgage company may be willing to
drop some of the fees if you opt out of a service.
For instance, they may overnight documents back
and forth for faster approval. If you are not
in a hurry, you can ask that the documents be
sent by regular mail and the overnight charges
be dropped.
Watch out for "junk fees" or additional
charges. Most mortgage programs include them,
but you should be able to negotiate them down
or eliminate them.
Other ways to save on costs
• If you choose an attorney not approved
by the lender, you may need to use another attorney
selected by the lender to close the mortgage loan.
By choosing a lender that can perform both functions,
you can save up to $500. You need an attorney
in a real estate transaction to represent you
with the seller.
• Try to close your mortage near the end
of the month. Because all mortage loans are due
on the first of the month, you will have to pay
interest from the day you close until the end
of the month. You can avoid or greatly reduce
prepaid interest due by closing the last day of
the month or near that date, and save yourself
hundreds of dollars.
• As part of the sale contract, you can
negotiate with the seller of the property to help
pay for some of the closing costs, points or other
fees.
• Plan ahead with your mortgage lender.
Don’t wait until the day of closing to try
to reduce costs.
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