Closing Costs and How They Work: Part II
We previously went over some key term you will need to know in part one. Here are some more terms that are extremely helpful while getting ready for your closing. Closing costs are based on location, the home that is purchased, and the type of loan that you choose.
Below, there are a list of terms. Be sure to study these costs as you will want to understand what is being paid for.
Escrow Deposit for Property Taxes and Mortgage Insurance:
Usually, you will be asked to put down at least two months of property tax and mortgage insurance payments at closing. Be sure that this is something that you are aware of! More so than not, your mortgage broker will keep you informed of these costs.
FHA Up-Front Mortgage Insurance Premium:
If you qualify and choose the FHA loan, you will be required to pay the UPMIP of 1.75% of the base loan amount. You can also roll this into the cost of your preferred loan. Be sure to understand this if your preferred loan is FHA.
Homeowners Association Transfer Fees:
While this does not pertain to everyone, it is a good idea to keep these fees in the back of your head for the future. The transfer fees are the Seller’s responsibility, and they are required to have documents showing that the dues are paid-to-date, what the dues are, and a copy of the Association financial statements (minutes and notices). Then, it will be the Buyer’s responsibility to look over these documents and determine if the Association has enough reserves in place to avert future special assessments, legal action, to see if there are special assessments, or any items that come to your attention. It is also the Seller’s responsibility to give you a copy of rules and regulations and Association by-laws. You will want to make sure and go over these. You definitely do not want to be that neighbor that does not follow these rules!
Lead-Based Paint Inspection:
This cost is exactly what it sounds like; an inspection for lead-based paint risk. This fee covers the cost of the inspection.
Loan Discount Points:
You may be curious about the meaning of this. “Points” are prepaid interest. One point is one percent of your loan amount. This is a lump sum that lowers your monthly payment.
This fee covers the cost to inspect for termites or other issues that are alarming. In some states and governmental loans, this is a required step. Repairs can be extremely costly if there are termites or other issues are detected. In this scenario, this fee is definitely worth it!
This has been part II of the terms that you need to know before walking into your closing. These terms are always helpful to understand so be sure to always do your research! To better understand what is being paid for, ask questions. Questions will always be answered to give you more knowledge!