Most first time homebuyers are a little unsure about what exactly closing costs are and that there is a difference between your actual down payment and your closing costs. Here is some information to share regarding closing costs.
Closing costs are the fees required to complete a home sale. The nature of the housing market may dictate whether the buyer or the seller picks up various closing costs. If the market is hot and homes are selling quickly, the seller has the advantage and there is no incentive to give the buyer a break. When the real estate market is in decline and homes aren’t selling well, sellers are more willing to dicker and take on a larger portion of the buyer’s costs.
The Real Estate Settlement Procedures Act (RESPA) is a consumer protection law. Passed in 1974, its main goal is to help consumers shop for closing services. When you apply for a loan, your lender or mortgage broker must provide a Good Faith Estimate of the fees that will be due at closing. This is a very useful tool, but bear in mind that these are estimates, not guarantees.
Some fees are generated by third parties and typically don’t change very much, no matter where you find your loan. There are additional expenses you can’t control, such as taxes and government fees. However, many lender-charged fees can be negotiated or even waived.
Negotiable closing fees generally include:
The loan origination fee. This is what borrowers are charged for the privilege of receiving a loan. Origination fees usually are expressed in the form of points. Each point represents 1% of the amount borrowed.
The appraisal fee. This is charged to determine the market value of home. If the value is found to be less than the requested loan amount, the loan won’t go through.
Attorney fees. Both the homebuyer and the seller may have their own legal representation.
Title insurance. This is insurance to protect a lender or owner against loss in the event of a property ownership dispute.
Although most buyers choose title companies recommended by a real estate agent or a mortgage company, they are free to shop for the best title insurance and settlement services.
Question Excessive Fees
Making closing-cost comparisons among lenders can be difficult, since different companies may use slightly different words to describe similar services. Watch out for “junk fees.” These are processing and documentation fees that may be added on simply to raise your bill. Question any fees for reviews or document preparation.
If your closing costs rise significantly beyond your Good Faith Estimate, you may feel pressured to accept them to avoid losing the home to another buyer. This kind of pressure is common during strong real estate markets, when prices are rising and sellers often have several buyers to choose from. Rather than pay the high closing fees, try to convince the lender to reduce the charges you find to be too expensive. If that strategy fails, talk to the seller and ask if he or she can extend the closing date so you can shop for another loan.
As you review your closing costs, be your own advocate. Don’t be rushed into paying too much. Make sure that you receive a thorough explanation for any fees that seem unusual, unnecessary or just too costly.
Please give us a call to explain how we may be able to include closing costs into your home loan and save money in your pocket.