Closing Cost Estimate
If you are a First Time Home Buyer then you may not totally understand all the closing costs involved with buying a home. Hopefully, we can help you to better understand what makes up closing costs and how much money that is actually going to cost you.
When a person applies for a mortgage loan the loan officer will complete what is titled a Good Faith Estimate (GFE).
This Good Faith Estimate will contain an estimate of all the money that the borrower will need to bring to the closing on the house. This estimate will include the buyer’s down payment and all closing costs paid by both the buyer and the seller. This estimate is usually pretty close to the actual money needed by both the buyer and seller. Some items like insurance and taxes on the property are truly an estimate and won’t be known for certain until the buyer actually purchases their insurance and the tax information is retrieved from the court house records.
Loan Closing Costs
Some buyers consider closing cost to be the total amount of money that they are due to pay at closing. However, that total is really made up of closing costs, pre-paid items and the buyer’s down payment.
Home Loan Closing Cost
Some of the closing costs items for a home loan are:
- Mortgage Origination Fee
- Processing Fee
- Underwriting Fee
- Closing Agent or Attorney Fee
- Cost of Appraisal
- Cost of Title
- Cost of Survey
- Courier Fees
- Wire Transfer Fees
- Recording Fees
- Flood Certification
Some charges are a percentage of the home purchase price, some will vary depending on the mortgage company and lender handling the home loan and others will vary depending on the company or person performing the service, such as, surveyor, attorney, appraiser.
Does The Seller or Buyer Pay Closing Cost
Depends. There are many different scenarios that can be arranged between a buyer and seller on a new home. The seller may agree to pay all closing costs but not the pre-paid items.
Or, the seller may agree to pay a fixed amount, such as $3,000, of the closing cost. The buyer and seller may agree to just split the cost of the attorney and the title fees.
These examples may make it sound as if the buyer and seller can just agree on any combination and it will work when the buyer goes to apply for a mortgage loan.
However, the fact of the matter is that mortgage lenders have certain guidelines about closing costs that must be followed. And, those guidelines depend on the type of mortgage loan that the buyer is obtaining.
Some type loans allow for the seller to pay up to 6% of the sales price of the home. Other type loans only allow the seller to pay up to 3% of the sales price. Depending of the price of the home these percentages may or may not cover all of the closing costs associated with the purchase.
Buyer Closing Cost
Closing costs vary depending on the state in which you are going to purchase a home. But, in general, you can expect the overall closing costs to run several thousand dollars.
So, as an applicant for a first time buyer home loan be aware that you may need several thousand dollars more than your planned downpayment in order to get a mortgage loan on your new home.