What are closing costs?
Closing costs are generally standard fees you will pay when you get a mortgage. It doesnâ€™t matter if you are looking at houses in Clarksville TN or any other city in the US. If you are getting a mortgage, there are closing costs. Even if you are paying cash, there are some closing costs, but they are less than the costs you will pay when you get a mortgage.
But what are they? What does â€˜closing costsâ€™ mean? The term is thrown at most buyers like they should know what it means and quite frankly the new HUD1 settlement statement does not do what the government intended it to do. It does not make your closing costs easier to figure out. Closing costs really are just what they sound like: they are the costs of closing your loan and closing the purchase transaction. (There are also closing costs if you refinance your house.)
When you buy a house in Clarksville TN or anywhere else, there are a lot of people involved in the transaction that need to get paid for their work. The appraiser, the loan officer or the bank, and the title company are a few of these people. Some people are not paid through the closing costs. These are the realtors. The realtors are paid by the seller a portion of the purchase price of the house.
The closing costs consist of the following:
- Â The appraisal
- Â The lenderâ€™s fees
- Â The title companies fees
- Â Taxes and fees to record the mortgage
- Â Flood certification fee
- Â Your credit report fee
Some of these can be broken down further, but in an effort to keep this simple, letâ€™s go with these. Some of these fees are flat fees, and some are based on the purchase price of the house you are buying. These can also vary from region to region, so if you are looking at houses in Clarksville TN and you are comparing to your brotherâ€™s closing cost on a house in Florida, the closing costs might be a little different. Some states also require a survey on every transaction and this would add to the fees.
Who pays the closing costs?
This is really the bigger question in a lot of ways, but in the end the buyer really pays them. You can ask the seller to â€˜payâ€™ the closing costs. Basically, that means they you are going to finance that much more. When the seller pays the closing costs they are not going to give you the same price on the house as if you were paying the closing costs yourself. The big difference is when you pay them you pay them out of your pocket. You typically cannot finance them. (Some loans will allow you to finance closing costs if the seller will not pay them, as long as the house appraised at a high enough value.) Your loan officer will explain this to you in detail and you should require them to do that.
Origination Fee: What is this?
The new Good Faith Estimate requires mortgage lenders to disclose how much they are going to earn from your loan. This is not equal for all mortgage lenders. Banks are not required to disclose this to you in the same way mortgage brokers must. Unfortunately, the new Good Faith Estimate is more difficult to understand than the one that was used prior to 2010. But here is what you need to know. The broker is more than likely going to charge you an origination fee. Typically it is 1% of the loan. The mortgage lender makes a certain amount of money based on the interest rate they give you for your loan. Not all lenders will give the same rate to you. I know this might be a little confusing, but I am telling you this so you may get the best deal you can. A .25% addition or reduction to your interest rate will not look like much in terms of your monthly payment, but over time it is thousands of dollars. Get yourself the best deal. Be polite but a bit blunt with your loan officer and find out.
Good luck with purchasing a house in Clarksville TN!