Your Guide to Closing Costs
For a first time home buyer, there are often some surprises that come with closing. Namely, the closing costs you are responsible for.
Early in your loan origination process, your lender should provide you with a Good Faith Estimate. While it’s impossible for your lender to know exactly what you will need to bring to closing, this estimate should give you a good idea.
Here are some fees you’ll be expected to pay at closing:
1. ORIGINATION FEE: THIS IS THE FEE THE LENDER CHARGES FOR MAKING YOUR LOAN.
2. DISCOUNT POINTS: YOU CAN SOMETIMES PAY THIS FEE TO LOWER YOUR INTEREST RATE. WHILE YOU’LL PAY A LITTLE MORE UP FRONT, IT CAN SAVE YOU MONEY OVER THE LIFE OF THE LOAN.
3. PRIVATE MORTGAGE INSURANCE: IF YOU DON’T PAY A 20% DOWN-PAYMENT, YOU’LL HAVE TO BUY THIS INSURANCE TO PROTECT THE BANK (NOT YOU) IN CASE OF FORECLOSURE.
4. INITIAL INTEREST: THIS IS THE PRORATED INTEREST YOU PAY FROM THE DATE YOU CLOSE THE LOAN UNTIL THE END OF THE MONTH. CLOSING AT THE END OF THE MONTH WILL LOWER THIS FEE.
5. LENDER’S TITLE INSURANCE: THIS INSURANCE PROTECTS YOUR LENDER FROM ANY CLAIMS MADE AGAINST THE HOUSE.
6. APPRAISAL: THE BANK DOESN’T WANT TO LOAN YOU MORE MONEY THAN THE HOUSE IS WORTH, SO THEY ORDER AN APPRAISAL TO VERIFY THE VALUE.
7. BUYER’S TITLE INSURANCE: THIS PROTECTS YOU FROM THINGS LIKE PAST CONTRACTORS MAKING A CLAIM AGAINST THE HOUSE BECAUSE THEY DIDN’T GET PAID.
8. SURVEY: GOES TO A SURVEYOR FOR DRAWING THE PROPERTY LINES.
When it comes time to close, you should receive a HUD or Settlement Statement from your lender with the actual costs listed a day or two before closing. Take the time to look over it and ask questions if you are unsure about anything.