Be Prepared for Substantial Closing Fees

                                                                                         

Many first-time home buyers do not know what to expect at closing. It is important to know that you are going to need more cash than just your down payment. When you submit your application for you loan, your lending institution will furnish you with a Good Faith Estimate which will inform you fairly closely what the closing fees will be and you can prepare accordingly.

Loan applicants must request that the lender for a Good Faith Estimate (GFE). Responsible lenders normally give you a GFE at the time of application. Regulations oblige lenders to disclose estimated closing costs and the Annual Percentage Rate within three days of the application. Loan stipulations vary and sometimes small changes will occur after the initial application.

Closing Costs Based on Your Chosen Financing Option

Lenders propose several options for fees. One option is a "No Cost" loan. These loans come at a higher interest rate than traditional loans; basically your closing costs are included in your loan by the higher rate. Another option long-term buyers prefer is buying your interest rate down through points. Purchasing a point is one percent of the cost of the loan and usually equals a .125 lower interest rate. Determine your priority. First-time buyers are usually concerned about move-in costs.

Typical Closing Costs Checklist

Generally, a lender will charge an origination fee that can be one percent of your loan amounts as well as a processing fee. Processing fees start at $350 and go up from there. If you are using a mortgage broker, there may be bank closing fees as well, including an underwriting fee and a doc preparation fee. These fees will generally total between $600 and $900. There are also title fees, title insurance fees, inspection fees and an appraisal fee. Title fees will vary according to loan amount. Appraisal fees can cost approximately $350 or more. Since all of these fees can vary so much, the GFE is crucial.

Taxes, Prepaid Interest and Insurance are Put in Escrow

To procure financing for your new home, you must buy homeowner's insurance. The first year's premium will be paid at closing. The lender may require one or two months' interest at closing as well, since you have about a month before your first mortgage payment is due. The later in the month you close on your home, the less interest you pay at closing. Depending upon the time of year you purchase and what property taxes have already been paid for the year, they will also require four to nine months of property tax at closing.

Just to repeat, make sure that you are aware of all the closing costs, so that there won't be any embarrassing surprises on closing day.

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