Closing Costs

Closing Costs

Closing costs are a collection of fees associated with completing a mortgage transaction, and they must be paid before the title of the property can be transferred to you. Depending on your contract and the specific fees, these costs may be covered by you, the seller, or the lender.

When you apply for a mortgage loan, you will receive a Good Faith Estimate (GFE) that provides an estimate of the approximate closing costs. This document helps you understand how much the loan will ultimately cost and allows you to compare these estimates with the final costs before closing. It’s important to note that the actual final costs can be significantly higher than those quoted in the GFE. You have the right to question and negotiate these costs, and you may even choose to walk away from the deal if necessary. Closing costs typically range from 2 to 5 percent of the purchase price.

Here are some common fees you may encounter in your closing costs:

  • Lender’s Origination Fee: A fee charged by the lender for processing the loan.
  • Deposit Verification Fees: Fees for verifying the buyer’s deposits or financial status.
  • Attorney’s Fees: Costs associated with legal services provided for the transaction.
  • Appraisal Fee: The cost of an appraisal to determine the property’s value, along with any inspection fees.
  • Title Insurance and Title Examination Costs: Fees for ensuring the property is free from previous claims or liens.
  • Document Preparation Fees: Charges for preparing necessary documentation, often by a third-party service.
  • Property Survey Fees: Costs for surveying the property’s boundaries.
  • Credit Report Fees: Actual costs incurred for obtaining the buyer’s credit reports.
  • Transfer Stamps, Recording Fees, and Taxes: Fees related to recording the property transfer and any applicable taxes.
  • Testing and Certification Fees: Costs for required tests or certifications, such as for lead or radon.
  • Home Inspection Fees: Charges for a home inspection, typically up to $200.

 

Being aware of these costs will help you budget appropriately and prepare for the expenses associated with your home purchase.

Credit History

Lenders review your credit history, which reflects your borrowing and payment habits, to gauge your likelihood of repaying a mortgage loan.

First-Time Homebuyer

U.S. Department of Housing and Urban Development (HUD) sets criteria to define first-time homebuyers. Helps lenders identify and allows to track their numbers.

Loan-to-Value Ratio

Loan-to-value (LTV) ratio compares the loan amount to the home’s value. It helps assess the risk of granting a mortgage and influences mortgage insurance rates.

Credit Requirements

The FHA sets credit requirements for government-backed home loans. For example, to use the 3.5% down payment option, you need a FICO score of at least 580.

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