Closing costs are something that must be considered when buying a condo or house, especially because they have been rising across the country in 2010.
However, many buyers, especially those going through the process for the first time, are not even sure what closing costs encompass. Essentially, closing costs are the fees that must be paid for items required by the lender as conditions of the loan. They include the cost of title searches, loan applications, recording the deed, appraisals, credit checks, homeowner’s insurance and mortgage insurance.
The total amount of closing costs vary because they are a percentage of the cost of the property being bought, usually between 3 and 6 percent. Prior to the closing, it is advisable to ask your lender for at least an approximate cost, so you will have an idea what to expect and will come prepared. In some cases, a motivated seller agrees to cover the fees for a cash-strapped buyer, but that doesn’t always happen.
Furthermore, the average mortgage closing costs have been increasing across the country in 2010, according to an online survey by personal finance company Bankrate Inc., which released its findings in August. For instance, the closing costs jumped 40 percent in Illinois in 2010. For instance, the origination and third-party fees on a $200,000 mortgage added up to $3,505 in the 2010 survey, up from $2,486 a year ago.
The story was similar across the United States, which saw, on average, a 36 percent increase in closing costs over 2009 numbers. Bankrate attributed one of the reasons for the increase to the new regulations implemented in January. Lenders now must provide an estimate of title and closing fees within 10 percent of what the final cost will be, or they will risk penalties. The regulations require more labor in getting a loan together, but they are meant to benefit people financing a condo by providing them with as much information as possible before the closing.
In the Bankrate survey, which assessed average closing costs in the 50 states plus Washington, D.C., Illinois ranked as the 43rd most expensive, and moved up to 31st with the increases this year. But still trails behind New York, which was found to be the most expensive, with an average fee of $5,623. The survey excludes property taxes, recording fees, homeowners insurance and prepaid items such as a partial month’s mortgage interest. It also does not include any discount points.
You want a Realtor with excellent negotiating skills to help you get the best deal possible. Because after all, if you have your heart set on buying a condo that you really like, you don’t want closing costs to be a deal-breaker.
The time has come when you are about to close on your new home and you are informed that you are going to have to come to the closing table with money. In order for you to better comprehend what the closing costs are, it is important for you to understand the Good Faith Estimate and the costs you are responsible for.
One of the sections on a Good Faith Estimate is an explanation of your loan terms. It will underline what you loan amount is, the term of your loan, and the interest rate. It also explains the initial monthly amount owed for principal, interest and any mortgage insurance. This will help you clearly understand the summary of your loan.
The next section is the Escrow Account information. When purchasing a home you can have two options for paying your taxes. You can either pay your taxes in a lump sum every year, or you can have the mortgage company escrow your payments into your mortgage. This way you are paying small amounts every month.
Following this section is the summary of the settlement charges. The first line item is the adjusted origination charge. This is the charge that you will pay the mortgage company for getting you the loan. The second line item is your credit or charge (points) for the interest rate. This amount depends on whether or not you used your money to pay off some points on your interest rate or whether you received a credit.
The second portion of the summary of settlement charges is the charges for all other settlement services. This may include required service fees. The mortgage company will charge a fee to complete your settlement. You will also pay a fee for title services and lenders title insurance and also for owner’s title insurance. The next time item you will need to pay for is government recording charges. These charges are for the state and local fees that you will have to pay to record your loan and title documents. The following charge is for transfer taxes. The charges are for state and local fees. You will also pay an initial deposit for your escrow account. This is a sum of money that will get you started with your escrows. You are also charged for your daily interest. It starts on the first day of your loan and you will pay up to the next month. The last line item is for your homeowners insurance. You must buy home owners’ insurance to protect your home from a loss.
Section B is a total of your charges for all other settlement services that were involved in the loan process. Closing costs are not cheap, so it is important you know exactly what you are paying for and where your money is going. Since recent changes have been made, all Good Faith Estimates have an instruction section that will explain the charges, which again will allow you to better understand what the settlement charges are for.
For the first time ever, HUD will require mortgage lenders and brokers to provide borrowers with an easily understood Good Faith Estimate that will clarify exactly what he/she is paying at the closing table. The borrowers will know what the term of the loan is, whether or not the interest rate is fixed or adjustable, whether or not there is a pre-payment penalty if the buyer should choose to refinance at a later date, whether or not there is a balloon payment, and exactly what the total closing costs will be.
HUD estimates that by improving the disclosures on the Good Faith Estimate and limiting the amount of estimated charges, consumers can actually save money. This new regulation of good faith estimates will save consumers nearly $700 at the closing table. HUD will now require lender payments to mortgage brokers to be disclosed in a manner that is easy to understand. These payments are directly dependent on the interest rates that consumers have agreed to. To ensure the new requirement is beneficial for all, the Department did a rigorous consumer testing and found that the new GFE helped consumers to select the lowest cost loan almost every time, regardless of whether or not the loan was originated by a broker or a lender.
The new Good Faith Estimate has also shortened the form to three pages instead of the four pages. They did this because there were industry commenter’s that had complained that four pages was too long. This will help borrowers not only understand their loan offer, but also what each payment represents. There is also an instructional page that will clearly explain all costs. HUD believes that borrowers need to be aware of all of the fine details of their loan and understand the settlement costs.
Consumers are also allowed to compare their estimated closing costs with the actual costs included on their HUD Settlement Statement. In order to simplify this comparison, the HUD statement will now include a reference to the relevant line of the Good faith estimate.
All of these new requirements are set to take place in January, 2010. HUD will allow lenders and settlement service providers to update what could be potential violations of RESPA's new disclosure and tolerance requirements. They will have 30 days from the date of closing to correct any errors or violations and they will repay consumers any overcharges.
