|
 |
Closing Costs for Residential Real Estate
Although most of us have heard the phrase “closing costs”, not many
people really understand what’s adding $10,000 to $12,000 (and more)
to the cost of purchasing a home. Even those of you who have spoken
with a mortgage lender, and received a “Good Faith Estimate” of
closing costs, do not fully understand where all that money is going.
Let’s look more closely at what you’re actually paying for and why.
The following applies to houses and condos. Co ops (which are not
real estate) will be the subject of another article.
Closing costs are comprised of bank charges, paid to the bank, and
title charges paid or remitted to the title company. Individual
items can vary widely between lenders and title companies. Some
charges are discretionary (the lender or title company can waive
them), and some are not.
Points:
(sometimes called loan origination fee or discount fee)-One point
is equal to 1% of the loan amount. When you pay points you are literally
buying down the interest rate of your loan. If you are short on
cash, elect not to pay points and pay a slightly higher interest
rate for the life of the loan. If you have sufficient cash, you
may want to pay points to obtain a lower interest rate. You usually
have a choice (borrowers with poor credit may not have this flexibility).
Appraisal:
Banks require an appraisal of the house before they’ll agree to
make the loan. This fee ranges from $350-$500.
Application Fee, Document Review Fee, Underwriting Fee,
Post Closing Review Fee:
These are various discretionary lender charges which basically amount
to the passing along of the bank’s overhead costs to you. They can
total $1,000 or more and they are negotiable.
Tax Service Fee, Flood certification, Credit Report:
These are small charges that respectively, provide for your tax
bills to go directly to the lender, certify whether or not the house
is in a flood zone, and advise a lender as to your creditworthiness.
Lender Attorney Fee:
You pay the fee of the banks’ attorney to prepare the loan documents
and attend the closing. This fee ranges from $500 to $750. Higher
fees are excessive. In the common “piggyback” loan arrangements
(80% first mortgage and 10% credit line), an additional fee may
be charged by the attorney for the second loan. Be careful if your
contract requires a closing in a particular county, that you lender
assigns the closing to an attorney in that county to avoid a travel
fee to the seller’s attorney.
Per Diem or prepaid interest:
Since lenders want their payments on the first of a month, at the
closing you pay interest on your mortgage from the date of the closing
to the end of that month. Thereafter your first mortgage payment
is not due until one full month later. Per diem interest is computed
by multiplying the loan amount times the interest rate and dividing
by 365 days and then multiplying times the number of days left in
the month you close.
Escrows:
Most lenders require that they pay your real estate taxes and homeowner’s
insurance. Although you will be required to purchase a homeowner’s
policy for a one year period before we can schedule your closing,
we pay several months’ worth of premium to the bank at closing to
start the escrow fund. The same is true for real estate taxes and
the amount needed to start the escrow fund depends on the amount
of the taxes and when the next tax payment is due.
PMI:
This is an insurance coverage for loans exceeding 80 percent of
the appraised value of the home, which insures the lender against
the borrower’s default. Your lender will advise as to this amount.
It is sometimes prepaid at closing, and sometimes paid out over
the life of the loan until the outstanding balance on the loan is
less than 80%.
Title insurance premium:
The premium for title insurance is determined based on the purchase
price of the house and the amount of the mortgage. These fees are
controlled by statute and do not vary between companies.
Departmental searches:
The title company charges for their searches of the building department,
highway department, tax report, bankruptcy searches, Patriot Act
searches and so on. We have negotiated with the title companies
we use for a reduction in some of these fees for SBA members. Otherwise,
fees may total $500.
Recording fees:
It costs approximately $300 to record the deed and mortgage at the
county clerks’ office.
Mortgage Tax:
All purchasers pay mortgage tax to the state. This is ¾ of a per
cent of the amount you borrow. New York City charges an additional
1% mortgage tax, as do some other municipalities.
Title Closer:
It is customary to pay an appearance fee to the title company representative
at the closing. Although this is not required (since it is in the
nature of a gratuity), title closers perform a vital function and
provide many services which make a closing proceed quicker and smoother.
Survey:
Most lenders require purchasers to have a survey of the property
(an overhead view drawing of the land and house). If a seller has
a survey to pass along, an update of it costs approximately $100.
If a new survey is necessary, fees vary based on the size and shape
of the lot and are between $450and $1250.
If you are selling there are costs to be paid as well:
Realtor:
It is best to list with a full service realtor. You should agree
in advance with the realtor for a fair commission that allows the
realtor to be adequately paid to show and advertise your home.
Existing Mortgage:
You must pay off your existing mortgage at the closing. We will
assist you in obtaining a “pay off letter” from your lender. The
mortgage is paid from the sums the purchaser pays you..
Title Charges:
You will pay about $100 to record the satisfaction of the existing
mortgage at the county clerk’s office. This cancels the loan. The
title closer charges a “pick up fee” for seeing to it that the mortgage
payoff gets to the lender and that the satisfaction is recorded.
This fee ranges from $150-$200.
Transfer tax:
All New York sellers pay transfer tax to New York State of $4 per
thousand dollars of selling price. New York City sellers pay an
additional 1% to the City. Other municipalities may charge their
own transfer tax.
Feel free to call or email my office with any questions you may
have. We are happy to review any Good Faith Estimates.
Denise R. Langweber
Attorney at Law
3332 Sunrise Highway
Wantagh, New York 11566
516 765-2800 Tel
516 781-0347 Fax
email: denise@langweberlaw.com
|
