Home Buyer's Guide - closer look at...
The total cost of buying a home includes considerably more than just the purchase price alone. The expenses involved in completing the purchase - known as closing costs - represent a substantial additional investment.
Mortgage Application Costs
Most lenders charge a preset fee for submission of a mortgage application. The lender will also require an appraisal of the subject property, which may or may not be included in the application fee. These costs vary from lender to lender, but are generally in a range of $150 to $500.
Many lenders require that a home inspection be completed before closing. Even if it is not required, it is well worth doing - you don't want to find a whole series of problems necessitating repairs after you close. In many areas inspections may be required for termites (and other pest infestations) or radon, or both. Inspection costs generally range from $200 to $700.
The lender will require title insurance to protect against any unforeseen claims against the property. Title insurance can also be purchased to protect the buyer as well. The title company will perform a search to insure that clear title can be passed at the closing and will write the required insurance policy. Costs vary with the amount of coverage, with most homebuyers paying $300 to $1,200.
Mortgage Closing Costs
Most mortgages include 1-3 points, which are due at closing (and are usually deducted from the loan proceeds). Each point is equal to 1% of the loan value. In addition to points, some lenders may charge a processing fee of several hundred dollars. Most lenders also require the prepayment of 1-2 month's mortgage payments (or prorated payments until monthly billing begins) as well as an escrow for property taxes. If private mortgage insurance is required, the first year's premium is also due at the closing.
Most lenders require that the first year's homeowner's insurance premium be paid in full before the loan proceeds are released at the closing.
Adjustments with the Seller
The seller is credited for property tax payments that cover the period after the closing. Additionally, the seller receives a credit for any similar items, such as fuel oil remaining in the tank.
There are a number of small fees related to the notarization and filing of the deed and the mortgage. These fees vary, but are usually no more than $100. Generally, attorney or escrow company fees are paid at the closing. The survey fee, if not paid previously, is also due at this time.
Closing Expenses vs. Prepayments
Some closing expenses are actual costs - they are fees that you must pay to complete the closing. Others are prepayments, which are not additional costs, but rather expenses you would incur later anyway (mortgage prepayments, tax adjustments, etc.).