Buyer's Q & A | Closing Costs
Q: What are closing costs and fees?
A: Closing costs are the fees for services, taxes, etc, such as: loan origination fees, discount points, assumption fee, cost of title search, title insurance, owner’s title insurance, survey, transfer tax, lender’s appraisal fee, recording fees, prepaid interest, homeowner’s hazard insurance premium, property tax escrows, and lawyer/escrow fees. Unless these charges are rolled into the loan, they must be paid when the home is closed.
Q: Who pays the closing costs?
A: Closing costs are either paid by the home seller or homebuyer. It often depends on local custom and what the buyer or seller negotiates.
Q: Can I save on closing costs?
A: Closing costs, which can average 2 to 3 percent of the home purchase price, are often more costly than many buyers expect. But there are some ways to save:
- Negotiate with the seller to pay all or part of the closing costs. Check with the lender first.
- Get a no-point loan. The trade-off is a higher interest rate on the loan and many of these loans have prepayment penalties. But buyers who are short on cash and can qualify for a higher interest rate may find a no-point loan will significantly cut their closing costs.
- Get a no-fee loan. Usually, though, these fees are wrapped into a higher interest rate though it will save you on the amount of cash you need upfront. * Get seller financing. This kind of arrangement usually does not entail traditional loan fees or charges.
- Rent the property in which you are interested with an option to buy. That will give you more time to save for the upfront cash needed for the actual purchase.
- Shop around for the best loan deal. Each direct lender and each mortgage brokerage has their own fee structure. Call around before submitting your final loan application.
Q: What is a title report?
A: A clear title report ensures there are no liens placed against the prior owners or any documents that will restrict your use of the property. A preliminary title report provides you with an opportunity to review any impediment that would prevent clear title from passing to you.
When reading a preliminary report, it is important to check the extent of your ownership rights or interest. The most common form of interest is "fee simple" or "fee," which is the highest type of interest an owner can have in land. Liens, restrictions and interests of others excluded from title coverage will be listed numerically as exceptions in the report.