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TYPICAL CLOSING COSTS
Closing costs are part of every real estate transaction. Typical costs are shown below. Explanations of these costs are supplied to help you better understand and eliminate some of the pre-closing “jitters”. There are two classes of closing costs: Costs for transferring title and costs for obtaining a mortgage loan.
Title Costs
In a purchase transaction, the seller of the property is required to insure clear title is passed on to the buyer. The seller can do this by obtaining a commitment for title insurance from a title insurance company or have the Abstract of Title updated by a title company. This abstract is then given to an attorney to review and issue a “Title Opinion”. Both are designed to find any problems with being able to pass title to the subject property free and clear of any liens or claims.
After a commitment for title insurance or an attorney’s opinion is delivered, a warranty deed and other title transfer documents transferring the property from the seller to the buyer is prepared by an attorney at law.
The Recorder of Deeds in the county in which the property is located charges a filing fee to record and make of record any title transfer documents. These fees are typically paid by the buyer.
Your purchase agreement will have terms which will specify which costs of title transfer will be paid by the seller and which will be paid by the buyer. If you are refinancing your home, the costs for title insurance or opinion and filing fees will be paid by the borrower.
In certain situations, a survey may be required to assure you and the lender that the lot containing the home you are buying has not been encroached upon and is not encroaching on a neighboring property. A survey can also be used to obtain a legal description of the property and place property boundaries if it is being partitioned out of a larger parcel of land and insure the house and other structures are legally located where you or the seller say they are. Costs for the survey may be paid by the seller or the buyer, depending on the area and terms of the purchase agreement.
Mortgage-Related Costs
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Loan Origination Fees - These are typically points charged as part of the loan. A point is one percent of the loan amount. These points are prepaid finance charges and are included in the Annual Percentage Rate calculations. |
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Appraisal Fee - An evaluation of the value of the property is performed by a licensed, independent real estate appraiser. The appraiser bases the value of the property on various factors, including comparable home sales, market conditions, location and marketability of the property. |
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Credit Reports - An independent credit reporting agency is engaged to update your credit file. The balances and status of your creditors and public records are verified as of the date the update was requested. |
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Mortgage Insurance - If you are financing more than 80% of the value of the property, a lender may require you to carry mortgage insurance. This coverage insures the balance of the loan only. Charges for this insurance will vary according to the term and amount of the loan and the amount of coverage required. |
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Homeowner’s Insurance - Often referred to as Hazard Insurance. This insurance is protection against loss from physical damage to the house by fire, wind, vandalism, and other causes. The lender will require you to obtain an insurance policy in an amount at least equal to the mortgage balance. You should consider a larger policy to cover the purchase price or replacement value to protect yourself against loss. Proof of coverage, listing the lender as mortgagee, and a paid receipt for one year’s premium will be needed at the time of closing. |
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Inspections - As part of the evaluation of the conditions of the home, you or the lender can require certain inspections be performed. These inspections can be conducted for pest infestations, structural integrity and evaluation of physical plants such as the furnace, air conditioning unit, etc. |
Additional costs may be involved with your mortgage. These costs will be itemized and explain before the closing.
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