Monday, May 10, 2010

What Are Some Average Closing Costs?

When you are considering buying a home, you may wonder what are the average closing costs to get that home. Many want an idea of how much to save for these costs. It would be a shame to have the down payment saved for and then find out you need more money saved for the closing. This article will talk about what are some of those average closing costs.
First let us discuss there are two types of closing costs. You have non-recurring fees which are your one-time fees associated with closing your mortgage and those recurring costs that are also called prepaids. Many times non-recurring fees can be negotiated. Whereas the prepaids usually are not negotiable.
Remember you can only get an idea of the costs for these fees. From place to place they can be different. So do not look at these prices as set in stone. They are just to give you a picture of what to expect. You should find these listed on your Good Faith Estimate.
Below are a list of some of those non-recurring one-time fees for home closing costs:
  • Application Fee - This is a fee that the lender requires to get your application started. This fee can include your credit report. They can range from $100 to $400. This fee is negotiable.
  • Origination Fee - This fee is for the work of preparing your loan and is sometimes referred to as "points". Your loan officer is usually paid from this fee. You can expect a range of 1% to 5% (or 1 to 5 points) of the loan amount for this fee. Definitely negotiate this fee.
  • Mortgage Discount Points - The name for this fee can be confusing. When you hear the word discount you think you are getting a bargain or something being lowered for you. These fees are paid to buy you a lower interest rate. So it is money you put up front to lower your rate. In a since it is a bargain when you consider you will pay less interest for your loan. Where it is confusing is you put money up front to get this bargain. Mortgage discount points can range from.5% to 2% of the loan amount. Be sure to negotiate this fee.
Now consider those average closing costs that are recurring costs, referred to as prepaids:
  • Property Taxes - Depending on when you close your loan and when the seller paid his property taxes, you may have to give the seller back some money. How does this work? Keep in mind taxes are paid in advance. So if the sellers taxes were due February 28th and that paid him until July 31st, but you closed on the home May 30th. You would then owe from May 30th to July 31st to the seller. But that may not be all, the lender may collect from you the taxes due for the remainder of the year, that is from July 31st to December 31st at the closing. See why these are called prepaids! These costs cannot be negotiated. Although some sellers are willing to help in this area to help with closing the loan.
  • Homeowners Insurance - This is insurance to cover any loss or damage to your home. Your lender will want this paid for at the closing. These policies can range from $300 to $1,000 depending on where you will live. Shop this fee to be sure you have the best price. Do this shopping before closing.
All of these loan closing costs are itemized on your Good Faith Estimate (GFE). By law this GFE is to be presented to you by the lender within three days after your application is accepted. Be sure to read this carefully and ask questions if you are uncertain what the fee is for.
Keep in mind your final GFE may the higher than the original one presented to you. This is because some of those final closing costs may be different. So do not be alarmed. Some fees were estimated to give you an idea of the cost. Then the actual bill for that fee may be more. Thus the GFE will reflect that. Still you will want to watch out for those unnecessary closing costs.
These are just some of the average closing costs you will find to close on your home mortgage. Do your homework ahead of time so that those fees that can be negotiated - are negotiated. Endeavor to not pay any more fees than you have to close on your home.


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