Closing costs can be a source of confusion for many people, even if they have bought and sold properties before. Every home loan comes with closing costs, and today we’re providing a closing costs explanation so you’ll know what to expect.
What Are Closing Costs?
Closing costs are fees associated with home financing. They aren’t part of your actual mortgage, so you need to pay them at your property closing. These costs cover the title search, attorney’s fees, origination fees, discount points, tax and insurance payments and real estate transfer taxes.
How Much Are Closing Costs?
Most closing costs range between 2 percent and 6 percent of your total loan amount. Sometimes you can roll the costs into the loan, such as when you put taxes and insurance into escrow, but others – like the origination fee - must be paid by check at the closing. Your Orlando real estate agent can help you with preparing and budgeting for these items.
Who Pays Closing Costs?
The buyer is usually responsible for most of the costs at closing. In some cases, your sale may be contingent upon the seller covering some of the closing costs. Make sure this is negotiated and decided before you get to the closing table.
Closing Costs Explained
Your closing costs will include the following.
Title Insurance. This is based on the home’s sale price. The fee protects you and the lender if there’s ever an ownership dispute. It also guarantees the title company conducted a thorough title search.
Title Search. Your title company will research the property to ensure there are no liens or other problems with ownership prior to your purchase.
State Mortgage Taxes. The state charges a fee as a tax on the home sale.
Escrow. Your escrow account pays fees that are not billed monthly. This might include the following: hazard insurance, which protects you and your lender if the home is damaged; property taxes, which are charged by local governments; and, mortgage insurance, which protects your lender if you default on your home loan.
Settlement Fee. This covers the settlement services and the agent who handles the payment transfers at closing.
Attorney’s Fee. In Florida, you don’t need to have an attorney present, but if you do, you’ll need to pay the fee at closing.
Flood Insurance Fee. In Florida, you need to establish whether your property is in a special flood hazard area.
Home Warranty Fee. This is optional; you may choose to purchase a home warranty that covers repairs and replacements on defective home items.
Home Inspection Fee. This cost is for a professional inspection of the property to identify any problems.
Survey Fee. Official boundary lines must be established at your property, and a licensed surveyor must complete this before a lender will secure your mortgage.
Notary Fee. You’ll need a licensed notary to certify your identity and the documents you sign.
Recording Fee. This covers the recording of your deed with the appropriate government agencies.
Interest. This prorated fee is charged for your mortgage interest from the date of funding until the time of your first mortgage payment.
Lender Fees and Charges
A major portion of your closing costs will go to lender fees. These are the costs associated with processing your loan, and they must be disclosed in the Good Faith Estimate document you receive once you complete your loan application. The charges include:
Discount points. You can pay points at closing to lower your overall interest rate, which results in a lower mortgage payment. One point is equal to 1 percent of the home loan value.
Loan origination fee. This is an administrative fee, which varies by lender and loan type. Usually, you can expect an origination fee of 1 to 2 percent of your overall loan.
Tax service fee. Tax payments for your loan must be monitored by a tax service agency. If property taxes are included in escrow, the tax service will obtain the tax bills so the lender can pay them.
Document preparation fee. There’s a lot of paperwork involved in a real estate transaction.
Closing costs seem confusing because there are so many of them. Orlando Realtors should be able to help you. If you have any questions about closing costs or anything pertaining to central Florida real estate, please contact us at Legends Realty.