Closing Costs Demystified
When you are getting ready to sell or a buy a home you always hear about them. The dreaded and mysterious closing costs. But what are they really? There’s so much terminology when it comes to home selling and buying that it’s no surprise this comes as a hitch at some point during your property search.
Basically, closing costs are that big jumble of fees that you either have come out of your proceeds or rolled into your loan. They include all kinds of things like:
Appraisal fee. This is a fee that you pay to the company that is in charge of taking a look or appraisal of your property and determining what it is worth. This is required for almost all loans and can significantly vary in cost.
Escrow fee. This is the fee that you may be charged by the title company for acting out the instructions for the loan, filing the documents, sending check, wiring money, etc.
Filing fee. When the purchase is completed, the change in ownership needs to be changed with the county government. This is the fee associated with this paperwork.
Inspection fee. You might have opted for a home inspection. If so, this is the fee for that service.
Application fee. Your lender may charge an application fee to apply for the loan in the first place. If they don’t collect this up front, you’ll pay for it now.
Origination fee. This is a fee that many mortgage companies charge based on the loan amount for the privilege of them loaning you the money. Rates vary but 1% is common.
Taxes. Do we need to explain these? It may be a refund to you for taxes if you already prepaid. Other companies will sometimes require you to pay the taxes for the property in advance.
PMI. Private mortgage insurance is not required on all loans, but on some. This is where they show that fee.
Prepayment penalty. If this is a term on your loan, then you’ll have to pay extra if you are paying off your loan before the agreed time frame.