For first time home buyers, you might see at as a surprise that at the end of the deal, during the closing process, you are paying for more than the stated selling price of the property. If you seek the aid of a real estate agent, he or she should have warned you that the closing fees usually amount to 2% or 3% more of the discussed selling price due to the other costs involved in the selling process.
Because of this, applicants of loan in banks or other lending firms should ask for a Good Faith Estimate or GFE. Responsible lenders give the applicants GFE even without them asking during the time of application. There is a regulation that is legally binding, which states that lenders should disclose estimated closing cost as well as the Annual Percentage rate within three days of application. Note the loan contingencies may still vary and often times, there still will be small changes after the initial application.
Usually, lenders are open to a number of options for fees. One option you can consider is called the “No Cost” option. Do not be misled by the name, no cost option has a higher interest rate than your traditional loans. All the closing costs are included in your loan subject to the higher interest rate. If you want to avoid paying for high interest rates, you can buy your interest rates down through points. This way is preferred usually by long term buyers. If you buy a point, one point is equal to one percent of the cost of the loan and is typically equal to a lower interest rate of .125. It is the first time buyers who are most of the time concerned regarding the beginning cost.
Additional cost that will go to your closing is the origination fee charged by the lender. It can be calculated as one percent of the loan plus processing fee. Processing fee, on the other hand, starts at $350 at the least depending on the lending firm. Now, if you are being guided by a mortgage broker, there is an additional bank closing fee as well such as underwriting fee and document preparation fee. Those fees mentioned total from $600 to as high as $900. It does not stop there, there are still title fees, title insurance fees, inspection fees and appraisal fees to consider. Getting the property appraised will cost you an additional $350 or more. All costs with regards to the lending firm vary that is why getting a GFE is crucial.
Before you can even get financing for a property, you have to first buy a homeowners insurance. Payment for the first year’s premium will be included in your closing cost. Since you have a month as your grace period before your first mortgage payment, the lender will require one or two month’s interest to be included in the closing as well. Property tax payment will depend on what month of the year you close the deal.
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