When purchasing a loan, remember the closing costs! Closing costs are a variety of fees that are added onto the initial loan payment or closing of the loan. These fees are not a part of the actual loan. Instead, these fees are as a result of the various services needed to procure a loan. In some instances, such as VA and FHA loans, closing costs are either financed or covered by the selling party. However, if your loan does require closing costs, below you can find the various costs needed to procure a loan.Who Are You Paying?
- Title Company
- Local Government
- Insurance Agent
- Attorney (If Necessary)
- Bank’s Insurance Company (If Necessary)
Bank: A larger portion of the closing costs go to the lending bank. Among these fees are the Origination Fee, Discount Points, Credit Report Fee, Loan Application Fee and the Initial Interest. The origination fee is charged for the bank making a loan for you. Discount Points are given to people for a lower interest rate. However, this costs an initial fee to save money in the long-term. If a Credit Report is needed, you may also be expected to pay this fee too. Finally, the Initial Interest fee is essentially a pro-rated charge. Let’s say for example you close a loan on the 10th. In this example, at the time of closing, you will be expected to pay the interest between the 10th and the 31st (end of the month).
Title Company: A title company’s biggest responsibility is to assure a title is legitimate. Without a legitimate title, real estate transactions are essentially null and void. In addition to proving a title is legitimate, title companies provide title insurance. Without title insurance, if someone sues you over the title possession, you are less protected. Title insurance defends a client’s claim to real estate when faced with lawsuits.
Local Government: The local government will require a handful of fees. Among their closing costs include Property Taxes and Government Recording fees. Yearly, home owners are expected to pay Property Taxes. Property taxes can be paid monthly or annually. The other fee is to provide proof you own the home. Our government must be able to provide documentation that you own the home.
Appraiser: Appraisals are performed to insure the value of a home. Banks often hire appraisers to prove the value of a home, for the loan purpose and for resell value. Without an appraisal, the loan process will eventually come to a halt.
Insurance Agent: After purchasing your new home, the next big step is insuring it. If unfortunate circumstance occur and your home is damaged, make sure you protect your investment. Homeowner’s insurance is nearly as valuable as the loan itself. When comes to the roof over your head, it’s best to have coverage to help afford any damages.
Attorney (If Necessary): Many loan transactions do not require attorneys. Obtaining a loan and purchasing a home is now a more standard practice. Considering loan contracts are more uniform, home buyers no longer need legal assistance. However, if an attorney is required, their fees will be included in the closing costs.
Private Mortgage Insurance (If Necessary): If a home buyer is unable to make a down payment of 20%, bank’s will require the borrower to purchase Private Home Insurance. PMI primarily benefits the bank from taking a loss, if the house is repossessed. Still, this helps the borrower as well. Being as they cannot make a significant down payment, this insurance allows the home buyer to still purchase a home. Learn more here: http://www.perennialfunding.com/loan-options/pmi-advantage/.
No one likes paying more money, but closing costs are essential to the home buying process. Still have loan or closing cost questions? You’ve come to the right place! Call (888) 496-7291 for a Good Faith Estimate or any other questions you may have for Perennial Funding.