Home Buyer Closing Costs
When buying or purchasing a home, you are going to have to produce closing costs at time of settlement. Home buyer closing costs can vary widely depending on what type of lender is used, the day of the month closing occurs, how much the seller is willing to credit or assist you, and many other variables that will all affect your home buyer closing costs. We will explain many of these issues that relate to the buyer’s closing costs below and hope to inform you as much as possible about the general fees associated with the buying side of a real estate transaction.
What is a HUD-1 Statement?
The HUD-1 is a form used by the settlement agent to itemize all charges for a real estate transaction. It gives each party a complete list of their incoming and outgoing funds. The Real Estate Settlement Procedures Act (RESPA) requires the form to be used as the standard real estate settlement form in all transactions in the U.S. involving federally related mortgage loans. RESPA states you should be given a copy of the HUD-1 at least one day prior to settlement though entries may still be coming in a few hours before closing. Most buyers and sellers study the form on their own, with their real estate agent, as well as the settlement agent. The more people who review it, the greater the likelihood of detecting any errors will be. So now that we know where the itemized fees will show up, we should take a close look at how the buyer closing costs are determined.
Items Payable in Connection with Your Loan & Lender:
1. Loan Origination Fee– The loan origination fee is usually one percent of the entire loan amount and is used to pay the lending company for their work (in some cases, the loan origination fee may be more than one percent). This is a fee that is pretty much set in stone and cannot be negotiated. Weather you are planning on using the services of a mortgage lender or a mortgage broker, keep in mind that this one percent fee will be paid by you at the settlement table. If you are obtaining a $300,000 loan, you will owe $3,000 based on a one percent loan origination fee.
2. Loan Discount Fee– The loan discount fee is used by many lenders and usually used more by brokers. A mortgage broker is considered a middle man and shops for your loan through many different lending institutions, typically to try and find the lowest interest rate and closing costs. They can then up their figures and fees so they earn more money without you knowing too much about the transaction. There are honest brokers, but remember, many of them want to make as much money as possible off your loan and sometimes will do horrible things to accomplish this. The loan discount fee can range from one tenth of a percent to over four percent of your total loan amount (& up). This fee is more negotiable and will also be added to the money that the lender is making from the real estate transaction. Please also take a look at our pre-approved section to gain more knowledge on this topic and related issues.
3. Appraisal Fee– The appraisal fee is a very standard fee as well. Typically, this fee should be between three hundred fifty dollars and four hundred fifty dollars. It is usually paid outside of closing (POC), but can be paid for at the closing table if your lender or loan officer is willing to pay the appraiser their fee before your loan closes and disburses.
4. Credit Report Fee– The credit report fee is also another standard fee that will run between eight dollars and fifty dollars. This is a one time fee that every lender will charge you to pull your credit, as well as your spouse’s credit report to verify your trustworthiness for the loan in question. You will be charged two separate credit report fees if the loan is going to be in two names.
5. Underwriting Fee– Want to hand some extra money to the lending company for this underwriting fee? A three hundred fifty dollar charge to infinity can be charged for the underwriting fee. This can be considered a Junk Fee and is usually negotiable, depending upon your negotiation power (please refer to our pre-approved section for more information).
6. Processing Fee– The processing fee has the same value to you as the underwriting fee does. It is typical to see both fees about the same amount of money and both of them are to be considered Junk Fees. You should always ask your loan officer upfront if they are going to be charging these types of fees.
7. Tax Fees– There will be city tax stamps associated with the sale of your home on both the mortgage and the deed. These fees are based on the final sales price of the home and the mortgage loan amount. The state will also collect taxes on the mortgage and deed as well.
8. Flood Certification Fee– This is an inexpensive fee, but should still be accounted for. The flood certification fee should be under twenty dollars.
There are many more fees associated with the home buying transaction. Your closing costs can be better estimated by reviewing our HUD-1 section which can be viewed by clicking here.