What closing costs should you expect?
There are certain ordinary expenses related to closing the sale of a house. These expenses are usually split between the buyer and seller, as instructed in the sales contract. Many are conventional, but there are nuances to each, so you’ll want a real estate expert in Texas to help guide you through your transaction.
Loan-related closing costs
Loan Origination Fee
This covers the administrative expenses in setting-up and processing the loan. The loan origination fee may be a percentage of the mortgage amount.
An option for the home buyer is to pay points to lower the interest rate at which the loan will be repaid. Each point equals 1 percent of the mortgage amount. For example: on a $150,000 loan, 1 point would equal $1,500.
The fee for having the house appraised may be incorporated into the closing costs or payment may be required by the lender at the time the loan application is submitted.
The lender uses a credit report to determine the creditworthiness of the loan applicant. This fee is often paid when the loan application is submitted.
Typically the buyer is required to pay interest on the mortgage loan to cover the time between the closing date and when the first mortgage payment period begins. For example: If closing is on May 15. Your first monthly payment begins to accrue interest on June 1 with your first mortgage payment due July 1. At closing an interest payment covering the accrual period between May 15 and May 31 may be required.
At closing a payment may be required to fund the escrow account if the lender is paying home insurance, property taxes and/or other expenses out of the escrow account.
Taxes you may be responsible for at closing
This is the one closing cost that is often prorated between the buyer and seller. If the seller has already paid the annual property taxes, the buyer typically reimburses the seller for the period in which the buyer will be occupying the property. Likewise, if the taxes have not yet been paid, the seller typically reimburses the buyer for the period in which the seller occupied the property.
Transfer Taxes and Recording Fees
This is the cost for transferring ownership of the property and recording the purchase documents. The fee is often calculated as a percentage of the sales price.
Insurance fees due at closing
This insurance covers replacement costs for damages caused by fire, wind or other disaster that might affect the value of the property. Typically, the insurance also includes personal liability and theft coverage.
Flood or Quake Insurance
Additional hazard insurance coverage that is required for homes located in a designated hazard zone as established by the Federal Emergency Management Agency (FEMA). As we tour houses, I will let you know if the property resides in a hazard zone.
Private Mortgage Insurance (PMI)
Insurance required for conventional mortgage loans when the borrower’s down payment on the house is less than 20 percent of the loan value.
This policy protects both the buyer and lender by insuring a clear chain of title. (In other words, it insures that that the person who sells the house has the legal right to do so.)
Sellers: As we negotiate your transaction, I’ll not only work to get the highest sales price, but I’ll also campaign for reduced closing costs. And once we’ve arrived at an agreement, I’ll give a detailed list of the closing costs so you know exactly where your money is going.
Buyers: If you are purchasing a house in Dallas County, you will receive a “Good Faith Estimate” (GFE) of closing costs within three days of submitting your loan application. The estimate is based on the loan officer’s past experiences and is required to be within a tolerable range so you’re not shocked when you reach the closing table. I’ll be willing to review the GFE with you, answering your questions and highlighting any estimates that appear to be out of the ordinary.