WHAT IS CLOSING EXPENSE
Closing expense is paid when you close on the purchase of property
like home or any other. It is associated with transferring your property to
your buyer or vice versa. As a common practice closing expense for buyer are
added to mortgage amount or paid as additional down payment, where else in case
of seller closing expense are subtracted from the settlement check.
Some time if you are lucky you may come across an eager seller who
may pay all your closing expense along with his. However most of the time it doesn’t
happen and buyer pays the majority of expense.
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In this article I am listing the most common closing expense you may have to pay while buying or selling a house
Mortgage point
It’s the money paid by buyer to lower the mortgage payment. There two
types of mortgage points origination point and discount point. Each mortgage
point is equal to 1% of the mortgage amount for instance let’s consider that
mortgage amount is $ 100,000 then buying 1 mortgage point will cost you $1000
Origination point is compensation for loan officer. Discount point
is prepaid interest, purchasing each point will reduce your mortgage payment by
0.25%. Considering the above example if you bought 3 point it will reduce your
mortgage payment by 0.75%.
It’s mostly beneficial when time period of your loan is loan for
example 30 years. Because in just few
years you would even the amount you paid to buy the mortgage point. But is you
are going to stay for few years mortgage points are not worth it.
Paid by: - buyer
Loan origination fee
It’s just an
administrative fee paid for processing new loan application. It ranges around
1-2% of the loan amount.
Paid by: - buyer
Credit report
Around $ 50 are paid by
buyer for credit report when loan is first applied for.
Prepaid interest
It is the interest owed
by the buyer for the part of the month after closing date. To avoid this
expense what you can do is that close on the last day of the month.
Escrow
The 1st
payment to the buyer’s escrow account is used to collect partial payment for
insurance, property tax and pay them when they are due.
Title insurance
It is the insurance
which protects the lender and homebuyer if there is any defect in the title of
the property.
Paid by: - either buyer
or seller
Recording fee
It is the fees paid to
record the transfer of ownership
Paid by: - often seller
Appraisal
It is the cost of having
a professional evaluator to evaluate the current value of the house. The cost
is mostly around 300 to 450 dollars.
Survey
Fees to determine the house’s
property line. May cost $150 to $350
Paid by: - buyer or
seller
Pest inspection
Ensure pest free house cost around $125
Paid by: - buyer
Property taxes
Most property taxes are paid one year
after they are incurred i.e. property tax of 2011 is paid in 2012. So seller
has to pay six months or a year’s worth of property tax to settle bills.
Insurance policy payment
Buyer pays for one year of insurance in advance or brings proof that insurance for the house has been purchased.
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