Getting ready to purchase a home is HUGE. While you’re probably aware of all the hoops you’ll have to jump through, you might not know about closing costs.
Closing costs are the fees charged for services performed during the home purchasing process. You pay these fees at closing. Closing is the final step of the loan process where you (the buyer) and the closing officer (the seller) sit down to have one last meeting. At this meeting, you’ll review the legal documents provided in your loan package and sign off in black or blue ink. This step is extremely important, as it is the final confirmation of the loan terms as discussed with your lender.
What Fees are Included in Closing Costs?
Closing costs vary based on the property, where you live, and the loan you choose. The following are a few of the most common fees you may see.
Application fee: A fee charged by your lender to process your loan application.
Home Appraisal: A fee paid to the appraisal company for confirming the value of the home.
Home Inspection: A fee paid to the home inspector who determined the condition of the home. This is usually required by lenders.
Origination: charged by the lender for administrative costs, such as preparing documents. Origination fees are usually charged as a percentage of the loan.
Underwriting: A fee for evaluating and verifying your loan. This is charged by your lender.
Credit Report: Your credit history and score will be pulled to determine your eligibility for a loan and interest rates.
Title Survey: This is paid to the title company for doing a very thorough research of the property’s records.
Again, closing costs will not be the same for everyone as they vary by region. On average, most home buyers typically pay about 2% to 5% of the home purchase price in the state of Florida. For example, if the home costs $250,000, you might pay between $5,000 and $12,500 in closing fees.
Can I Avoid Closing Costs?
While you might be able to avoid some closing costs, you definitely can’t avoid all of them. Here a few ways to save on closing costs:
Ask for discounts: Your broker might offer a discount or even waive your application fee.
No-closing-cost mortgage: This option eliminates closing costs, but not completely. You will be charged a higher interest rate, or the fees will be rolled into the total cost of the mortgage. This is a good option for those who might not have the cash at the time of home purchase, but be aware that it will end up costing you more in the long run.
Shop Around: Your lender will probably have preferred vendors, such as title companies, home inspection, etc. That said, you don’t have to use these vendors, so do some research and shop around to find one who meets your needs.
Negotiate: Both you and the seller are responsible for paying certain fees. For example, the seller typically will pay the title transfer and realtor commission. You can try negotiating with the seller to have them assume some of your fees.
Your lender will provide you with an estimate of your closing costs at the beginning of your application process. This will allow you the chance to shop around to find the best lender and deal for you.
After finding a broker and going through the loan process, you will receive a closing disclosure (which is the final closing cost total) at least three business days prior to closing. This is your chance to make sure that everything looks right. If you have any questions or find a mistake, you’ll still have time to contact your broker.