Closing Costs and How They Work Part I

Closing cost fees are associated with your home purchase and paid at the closing of your real estate transaction. A closing is the time where you would hand the title of the property to the buyer. It is described as a ‘transfer’ in ownership. Now, if the closing is just a transfer in ownership, why do we have closing costs?

Closing costs are based on where you live, the home that is bought, and the type of loan that is chosen. Below, you will see a list of fees and what they mean. Be sure to study these terms before heading into your closing! You want to understand what is being paid for. 

• Application Fee: 
  This fee covers the cost for the lender to process your application. Before submission, be sure to ask your lender what this application fee will cover. This fee will often include a credit check for your credit score as well as an appraisal. One key item to remember, however, is that not all lenders will charge you an application fee. Be sure this is researched and discussed before putting pen to paper!

• Appraisal:
  An appraisal is a fancy way of saying that the home you have chosen is a fair price. This fee could be covered by your application fee, so be sure to ask questions! Getting an appraisal done is one of the most important steps before closing, so don’t jip yourself! You want to be sure that the home that you are buying is marked at the right price!

• Attorney Fee:
  This is also an important fee to pay while walking into your closing. This fee covers the cost of having an attorney present to look over the closing documents on behalf of the buyer or lender. Some states require this, but some do not. 

• Escrow Fee:
  This fee is paid directly to the title company, escrow company, or attorney for arranging the closing. The title company oversees the closing as an independent party in your home purchase.

• Courier Fee: 
  This fee covers the cost of transporting these important documents to complete the loan transaction as quickly as possible.

• Flood Determination or Life Loan Coverage:
  This fee is paid to a third party who determines if the property is located near a flood zone. If the property is found to be located near a flood zone, you will be required to purchase flood insurance that will be paid separately.

• Home Inspection:
  This fee is the most important while going through the shift in ownership. This inspection will make sure that the property that you are purchasing is in a safe condition. On the seller’s end, it can help determine problems with the home that will need to be fixed immediately. This will verify the condition of the property that you are selling and/or purchasing. 

• Homeowners' Insurance: 
  This will cover any possible damage done to your property. The first year’s insurance will often be paid at closing. After the first year is up, the responsibility will be left to you. Always be sure that your home is covered!
  
  These terms are always helpful to understand before walking into your closing. Always make sure to do your research, understand what is being paid for, and always ask questions! Questions will always be answered to give you more knowledge!