When you’re buying or selling a home, it can be difficult to get closing costs explained in a way you understand easily. From knowing whether your purchase is subject to an escrow deposit to knowing who pays the appraisal fee, it can be confusing. Closing costs – or the fees associated with the purchase of a property – are paid at closing, when the property changes hands. Some of the most common closing costs are explained here for both buyers and sellers in Moreno Valley. Your lender will provide a list of these costs when they send you a Loan Estimate (LE).
These are fees that cover the cost for the lender to originate and process your application for a mortgage. Few lenders collect this fee upfront, but most wait until closing to collect it through escrow. You should be told upfront if your lender charges an application fee.
Before you submit a mortgage application, ask your lender what this fee covers, and get these closing costs explained. It can include items such as a credit report, but it could also cover things such as a property appraisal. Knowing just what the application fee covers can help you better anticipate other potential closing costs.
When you purchase a home, many lenders require an appraisal by a professional. This appraisal is used to determine the fair market value of the home and puts it up against properties of similar size and in a similar location to yours.
Most often, the buyer pays the appraisal fee, but this may be an item you can negotiate in your contract. The fee on a single family residence is usually less than $600 but varies by lender. Check with them for the exact fee.
UNDERWRITING AND PROCESSING FEE
Underwriting fee is what the lender pays to underwrite your mortgage, whether to an in-house or outsourced underwriter. This fee is collected at closing through escrow. Lenders also waive this fee for VA loans. When charged, this fee can range from $795 to $1,095.
Processing fee is what the lender pays a processor to assist in making sure your loan gets the attention it deserves and moves along the process quickly. This fee is collected at closing through escrow. This fee can range between $595 to $995 normally.
SB2 AFFORDABLE HOUSING RECORDING FEE
This is a new fee passed down for California transactions where fees are meant to fund affordable housing. Sometimes these fees can be waived, but in a normal sale you can expect to pay up to $250.
SETTLEMENT OR CLOSING FEE
A closing fee is paid to the title company, escrow company, or attorney – in other states – for conducting the closing. This person acts as a neutral third party in the transfer of the home, and some states require that a real estate attorney be present even if you’re using a title or escrow company.
You can get these closing costs explained by your lender or the person managing the closing.
This covers the cost of transporting documents so that a loan transaction can be completed as quickly as possible.
Home inspections often are required by lenders, but many sellers also elect to get their own inspections. This fee can be negotiated between the buyer and seller to determine who pays it. You can expect to pay anywhere from $250-400 for a home inspection on a regular sized home. You can elect to do more thorough inspections such as mold testing, asbestos testing, as well as hire licensed contractors to examine specific parts of a home that you may be concerned about.
This fee covers the lender’s administrative costs, typically adding up to about 1 percent of the total loan. Some mortgages come without origination fees, so look around if you want to find a way to save this fee. Some lenders may also call this a buydown or discount fee which is a term that refers to the interest rate. For instance, you may be offered a certain rate with no buydown or discount fee, but a lower rate if you choose to buydown the rate.
PRIVATE MORTGAGE INSURANCE (PMI) or MORTGAGE INSURANCE (MI)
If you’re making a down payment of less than 20% of the purchase price, you likely will be required by the lender to pay PMI. Some lenders require that you pay the first month’s PMI at closing. VA loans is one of the better known loan products that does not have a monthly PMI component with a $0 down payment, but they charge a VA Funding Fee that varies; some veterans even qualify to have this Funding Fee waived. Other products like FHA have a monthly MI factor that is normally at 0.85% but can range between 0.45% and 1.05% depending on your down payment and loan amount.
When a home changes hands, that change must be recorded by a local recording office. This recording often comes with a fee.
This fee is paid to the title company, who does a search on the property’s records to make sure that the sale will be legal. This is another fee that may be negotiable between buyers and sellers.