WHAT ARE CLOSING COSTS
First Time Buyers and Buyer’s Closing Costs
I will try to explain Closing cost the First Time Buyers
One of the first steps towards owning your own home is talking to a lender. After looking at information such as credit rating (FICO Score) and employment history they will have a pretty good idea of how much and what kind of loan you will qualify for. At this point they will either give you a “Good Faith Estimate” of closing costs or mail it to you within three days of application.
Not all costs estimated on the “Good Faith Estimate” are the lender’s fees. The lender is preparing an estimate of most costs you may incur when buying or refinancing and is not required to list all costs. The lender doesn’t know what all the costs will be. The estimate is an educated guess based on past experience. Always anticipate the actual costs are going to be more than the estimate.
There are two categories of closing costs. Non-recurring closing costs are items that are paid once and you never pay again such as escrow and title fees. Recurring closing costs are items you pay time and again over the course of home ownership, such as property taxes and homeowner´s insurance.
Non-Recurring Closing Costs Associated with the Lender.
Loan Origination Fee The loan origination fee is often referred to as “points.” One point is equal to one percent of the mortgage loan.
Loan Discount On a government loan, the loan origination fee is normally listed as one point or one percent of the loan. Any points in addition to the loan origination fee are called “discount points.” On a conventional loan, discount points are usually lumped in with the loan origination fee.
Credit Report As part of the underwriting review, your mortgage lender will want to review your credit history. Credit reports usually cost between $20 and $60, depending upon the type of credit report required.
Appraisal Fee Because your property will be the collateral for the mortgage, lenders want to be certain of the value an appraisal serves this end. The appraisal looks to determine that the price you are paying for the home is justified by recent sales of comparable properties. The appraisal fee varies, depending on the value of the home and the time involved in determining value.
Mortgage Broker Fee Most loans are originated through mortgage brokers and they will sometimes list your points in this area instead of under Loan Origination Fee. They may also add in any broker processing fees in this area. This is so that it is clear how much is being charged by the wholesale lender and how much is charged by the broker. Wholesale lenders offer lower costs/rates to mortgage brokers than you can obtain directly, so you are not paying extra by going through a mortgage broker.
Lender´s Inspection Fee Normally on new construction and is associated with what is called a 442 inspection. Because the property is not finished when the initial appraisal is completed, the 442 inspection verifies that construction is complete with carpeting and flooring installed.
Tax Service Fee If you fail to pay your property taxes a property tax liens can take precedence over a first mortgage, so your lender will pay an independent service to monitor property tax payments. This fee usually runs between $70 and $80.
Flood Certification Fee This is a fee usually charged by an independent service to determine if your property is located in a designated flood zone. Flood Monitoring From time to time flood zones are re-mapped. Some lenders charge this fee to maintain monitoring on whether this re-mapping affects your property.
Document Preparation This fee is charged on almost all loans and is usually in the neighborhood of $200.
Underwriting Fee This fee is usually in the neighborhood of $300 to $350.
Administration Fee This usually takes the place of the Underwriting Fee but some lenders do charge both.
Appraisal Review Fee Some lenders review appraisals to make sure nothing has changed through the escrow period, especially on higher valued properties. The fee can vary from $75 to $150.
Wire Transfer Fee – This is to pay for the money getting from one account to another.
Seller’s Closing Costs
“Closing Costs” are the fees associated with selling or buying a home. Some fees are automatically assigned to either the buyer or the seller; other costs are either negotiable or determined by local custom. Closing costs depend on many factors such as purchase price and commission.
These fees and who (Buyer or Seller) is responsible for paying them will be part of the Purchase Agreement. Ask your Realtor® for a statement of estimated Closing Costs
Seller closing costs can include the following:
- All loans and fees associated with the loans.
- Broker’s commission
- Transfer taxes (varies by location but Los Angeles City is $4.50 per $1,000 and Los Angeles County is $1.10 per $1,000
- Prorated property taxes (Proration between the seller and buyer of the current property tax billing, to allocate to each their cost for the time property is owned. Want to know more about property taxes; visit http://www.lacountyassessor.com/
- Title insurance
- Documentary Stamps on the Deed
- Seller’s portion of the escrow fee (Intervalley Escrow charges $200 base plus $2 per $1,000)
- Mandatory government retrofit standards, inspections and reports if required by law. (water conservation certificate, smoke detectors, Gas earthquake safety shut-off valve, Natural Hazards Zone Disclosure, water heating bracing)
- Homeowner’s association transfer fee and fee to provide documents
- Homeowner’s association dues (prorated)
- Pest control inspection and the cost of any Section 1 work
- One year Home warranty plan.
- Miscellaneous fees (notary fees, messenger fees, etc.)
Who pays for closing costs?
When a buyer does not have the cash for the down payment and the closing costs they will sometimes ask the Seller to pay some of the Buyer’s closing costs. This amount is built into the purchase price and is written in the Purchase Contract Agreement.Basically the Buyer is then paying their closing costs over the term of the loan.
*This is not intended to be a complete list of closing costs. Your actual buyer fees may be different as negotiated in your contract.
Six Thing You Can Do to Help Make Your Purchase Go Smoothly ( not just first time buyers)
1. Check your credit.
Before you apply for a home loan, it is a good idea to obtain a copy of your credit report from the three major credit bureaus. Sometimes there are errors and if so they need to be fixed before you find the home of your dreams not after.
2. Get approved before you buy.
An approval means that a lender has verified your credit history, your assets and employment, and has approved your loan before you have found a home to purchase. As long as the home appraises for at least the purchase price, the loan should close.
Being approved shows the Seller that you are a serious Buyer and makes it easier for you to negotiate on the price of a home.
Getting pre-qualified is not the same as getting pre-approved and does not hold the same weight. Pre-qualification just gives you an idea of what you can afford. It is based on information you give to the Loan Broker and is approximate. No information is verified and because your credit, assets, or income is not verified, a pre-qualification has little value when purchasing a home.
3. Find a Realtor.
AS a Realtor®, I:
- will aid you in determining how much house you can afford. Often a REALTOR® can suggest ways to increase the down payment and explain different financing methods.
- can tell you what information you will need when you apply for a loan.am already familiar with current real estate values, taxes, utility costs, municipal services and facilities and other points that could influence your choice of properties.
- can be a huge help in educating you about your new home if you are relocating from another city.
- can show you only those homes best suited to your needs and personal preferences.
- often can suggest simple changes that can increase your homes value.
- am aware of the importance of this major commitment you are about to make.
- Whether you are a first time buyer or not I will be there to answer any of your questions.
4. Learn about the neighborhood.
Often you may find your dream home in a neighborhood that you’re not familiar with which means that you’ll have to do a little more research. If you find a house that you like, ask for a list of the neighborhood properties that sold in the last year. How does your home rank? Is it at the top of the price range? If so, it might be hard to resell. Is it average or on the low end? If so, great – as the other home prices go up in value, they will pull your home’s value up as well.
Check out the schools – are they sought after? A good school district means your neighborhood will always be valued by families which is a great reassurance to purchase, not to mention the value-add if you have school-age children.
Next, contact the police station and obtain crime statistics? Are they acceptable to you? Sometimes, if they won’t give them to you, it could be a cause for alarm.
Talk to the neighbors. The more people you talk to, the better sense you will get of who makes up the neighborhood and how they will effect your time spent in it.
Check out the location of the shopping, police and fire stations, schools, and air traffic overhead. These are all things that might affect your property value or quality of your life.
5. Protect Yourself.
Ask your Realtor for a copy of the documents you will be asked to sign if you decide to buy the house. Read them ahead of time so that you’ll understand the questions that you will be asked, the things you need to know, and the decisions you will need to make.
6.) Have reasonable expectations.
There is a lot of money at stake.
No house is perfect.
Remembering these two statements will help ease the negotiation, the inspection and the closing.
Emotions are high for both buyers and sellers. – The seller may have loving memories in the house. Maybe they are being relocated and don’t want to go. Understanding their motivations for selling will help you appreciate their situation and predicament during these emotional times.
There is a lot of money at stake for all the parties involved (and that includes the realtors) – Just remember that market value (the value of a home) is the price that a willing buyer and a willing seller can agree to. If you can not agree on a price, ask yourself: Is there something you missed? Are there comparables that support the price that they want? Are there motivations that might factor into the price they are demanding? In the end, does it matter? What is the house worth to you today and what do you think you can reasonably sell it for based on the amount of time you plan to spend in it? Think about the answers to those questions before you make your move.
No house is perfect – Always get an inspection. It might be a few hundred dollars, but it’s worth it. It’s the inspector’s job to find any problems with the house that could cost you thousands to repair down the road. Some inspectors have a tendency to over play the importance of their role and the items that they find. Get objective opinions that you trust before making a decision on an inspection report. Likewise, if an inspector says a foundation is cracked but its nothing to worry about – get a second opinion. Ask a handyman for an idea of how much repairs will cost and how complicated they are. The home buying process is an emotional, complex and time-consuming process, but it is worth it. Nothing compares to owning your own home in a neighborhood that you chose.