Closing Costs: What are they?

WHAT ARE CLOSING COSTS?

Closing costs are fees associated with your home purchase that are paid at the closing of a real estate transaction. These fees, paid to third parties to help facilitate the sale of a home, occur when the title of property is transferred from the seller to the buyer. Closing costs are incurred by the buyer and the seller in Florida, but it’s not an even split. The buyer pays the bulk of the fees and taxes. The closing costs vary slightly between counties. The reason for the huge disparity in closing costs boils down to the fact that different states and municipalities have different legal requirements—and fees—for the sale of a home.

Costs incurred may include loan origination fees, discount points, appraisal fees, title searches, title insurance, surveys, taxes, deed-recording fees and credit report charges. Prepaid costs are those that recur over time, such as property taxes and homeowners’ insurance.

How much are closing costs? Typically total 3% to 7% of the home’s purchase price. On a $250,000 home, you can expect the amount to run anywhere from $7,500 to $17,500.

CLOSING EXPLANATION

Once you have been pre-approved and go under contract you will receive a Loan Estimate. The Loan Estimate (later called Closing Disclosure) will break down all the fees associated with your home purchase, your monthly payment including principal, interest, taxes, insurance and mortgage insurance (if applicable). It will give you your estimated cash due at closing.

The real estate taxes are prorated: that have been paid by the seller for the year and the new taxes for the buyer for the year. After you close on your new home make sure you apply for homestead exemption (primary residence only). Ask about portability from the home you’re selling (if applicable).

The homeowner’s insurance is an estimate. The final amount will depend on who you choose and what they charge when you obtain a quote.

The title and settlement fees section is determined by the title company the seller chooses (Volusia, Flagler, St Johns counties).

Who pays for title insurance in Florida?

Title insurance works a little differently in Florida. In Sarasota County, Collier County, Miami-Dade County and Broward County, the buyer pays for title insurance and chooses the title company. In all other counties such as Flagler and Volusia County, typically the seller chooses and pays.

Title insurance protects the lender from claims against the house and protects the buyer from past contractors making claims against the property.

The taxes and other government fees section is based on what the State of Florida will collect in taxes when you purchase your home.

FEES PAID PRIOR TO CLOSING:

Typically buyers will pay for a home inspection (out of pocket cost paid prior to closing). The appraisal is usually ordered after the home inspection (also an out of pocket cost paid prior to closing). If there is not a current survey on the property, the title company will order one (typically out of pocket expense paid prior to closing).

START SAVING SOME $:  Approximate costs (high estimation) to pay before you actually move in (not including your down payment):

  • Escrow Deposit – 1% of purchase price (GOOD NEWS this amount will go towards yourtotal amount due at closing)
  • Appraisal – $500.00
  • Home Inspection -$400.00+ (not required by lender)
  • Termite Inspection -$200.00+ (not required by lender)
  • Survey -$400+ (check with your Realtor to ask Seller’s if they have a recent survey)

What Is a HUD Settlement Statement, TRID, or Purchase Agreement? The purchase agreement sets the amount of your offer and usually includes extra details, such as which appliances stay, who pays closing costs (seller can pay closing costs on some home loans) and when you’d like to take possession of the house. The seller (or selling agent) will have you sign the purchase agreement and offer “earnest money.” Earnest money is a deposit showing that you’re serious about your offer to buy the home; it’s usually 1% of the asking price and later applied as part of your down payment or other closing costs. It is a check you submit to the title company once your offer is accepted.

Laws require lenders to provide a loan estimate (also called Closing Disclosure) that reveals the closing costs on the property. Under the Real Estate Settlement Procedures Act (RESPA), lenders are required by law to provide this estimate, also known as a good faith estimate, within three days of the lender taking a borrower’s loan application. At least three days prior to the closing, the lender should also provide a closing disclosure statement outlining all closing fees.

WHEN CLOSING COSTS CHANGE

  • You decided to get a different kind of loan or change the amount of your down payment
  • The appraisal on the home you want to buy came in higher or lower than expected
  • You took out a new loan or missed a payment and that has changed your credit
  • Your lender could not document your overtime, bonus, or other income

These types of situations are called a “change in circumstances”.

Costs that can increase by any amount

These costs are not controlled by the lender, and can increase by any amount at any time:

  • Prepaid interest, property insurance premiums, or initial escrow account deposits
  • Fees for services required by the lender that you have shopped separately for (ex. homeowners insurance)
  • Fees for third-party services that the lender does not require (ex home inspector)

Costs that cannot increase at all 

If there is a “change in circumstances,” these costs can change by any amount, but otherwise they cannot change at all:

  • Fees paid to the lender, mortgage broker, or an affiliate of either the lender or mortgage broker for a required service
  • Fees for required service that the lender did not allow you to shop separately for, when the provider is not affiliated with the lender or mortgage broker
  • Transfer taxes

Costs that can increase by up to 10 percent

If there is a “change in circumstances,” these costs can change by any amount. If there is no change in circumstances, then the total of these costs cannot increase by more than 10 percent:

  • Recording fees
  • Fees for required services when you have chosen a third-party service provider

What happens when the costs change?

If your application has a “change in circumstances,” you will likely receive a revised Loan Estimate. If the costs have increased more than the allowed limits and your application has not had a “change in circumstances,” you may be entitled to a refund of the amount above the allowable limits.

REDUCING YOUR CLOSING COSTS

  • Get the seller to pay. Most loans allow sellers to contribute up to 6% of the sale price to the buyer as a closing-cost credit. It’s a way to seal the deal—and a tax-deductible expense for the seller. Don’t expect this to happen much in hot markets where inventory is scarce (which is almost everywhere these days). Typically in the Volusia and Flagler market we see the following:

Buyer wants $5000 of closing costs concessions.

Purchase price is $200,000, so the buyer offers $205,000 with $5000 of seller contribution towards closing costs. The home MUST appraise at $205,000

  • Join the military. Military members have closing-cost benefits that are often overlooked. Service members and veterans may qualify for funds to help them purchase a home. These benefits are not limited to the VA loan. The key is to do the necessary research to make sure you get everything you are entitled to.
  • Homebridge Heroes: All heroes: military, veterans, law enforcement, firefighters, first responders, health care professionals, teachers and pastors receive NO LENDER FEES AND A GIFT CARD AFTER CLOSING! We THANK YOU for your service and sacrifice!
  • Lender Credit: Lender credits might lower your closing costs in exchange for a higher interest rate. You pay a higher interest rate and the lender gives you money to put towards your closing costs. When you receive lender credits, you pay less upfront, but you pay more over time with the higher interest rate.

Lender Paying Closing Costs: You may see many advertisements regarding a lender paying all the borrowers closing costs. Ask yourself these questions:

    • Do you know of anyone giving away thousands of dollars for free? What about a company or bank? In my experience, when I have received loan estimates from lenders who claim to pay closing costs, in most cases their fees are higher or they quoted a higher interest rate. My recommendation would be to do your research and you can always request loan estimates from each lender and compare (IF the loan estimate you receive is better than the one I sent you, send it to me so I can work on matching or beating it).
    • Do you prefer to deal with multiple people throughout your transaction, or do you want to deal with only your lender and processor? If you have a question, how quick do you expect a response? What kind of communication are you expecting/needing/wanting? The feedback I hear from people who used a big named bank/lender is they deal with multiple people throughout the transaction, the response time is not what they wanted to expected it to be, the communication lagged severely, further their closing date was postponed several times.
    • Do you want to contribute to the community you are living in? Local lenders live, work and raise families in your area, their reputation means everything to their livelihood and that matters on how they serve you.
    • Do you want to close your loan on time? What if something happens during your contract? Do you want someone you can ask questions? Do you want someone that CARES about YOU and does not look at you just as another transaction, and will do whatever is possible to get you to the closing table including, exploring ALL possible scenarios?!

Purchasing a home is usually the largest transaction someone makes in their lifetime. If you can work with a group of people: Lender, Realtor, Homeowners Insurance, Home Inspector, Title Company who are all local, have worked with each other and know each other, you are more likely to have a seamless closing and be able to close on your home on time!

  • Recommendations when choosing a lender:
    • Do you research
    • Ask for recommendations
    • Ask your realtor
    • Talk to them, see if you connect with them
    • Check the lenders individual reviews
    • Check the company reviews

BREAKDOWN OF FEES

  • Lender Fees: Origination fees are fees charged by the lender for the creation of a loan. The fee typically amounts to 1% of the mortgage. The buyer can purchase discount points up frontto reduce the interest rate charged by the lender. Other lender fees may be: underwriting, processing, credit report etc. Private mortgage insurance is an additional fee applied to any purchase with a down payment less than 20%.
    • Origination Fee: This covers the lender’s administrative costs. It’s usually about 1 percent of the total loan.
    • Underwriting Fee: This also goes to your lender, covering the cost of researching whether or not to approve you for the loan.
    • Application Fee: This fee covers the cost for the lender to process your application.
    • Appraisal: This is paid to the appraisal company to confirm the fair market value of the home.
    • Credit Report: A Tri-merge credit report is pulled to get your credit history and score. Your credit score plays a big role in determining the interest rate you’ll get on your loan.
    • Prepaid Interest: Most lenders will ask you to prepay any interest that will accrue between closing and the date of your first mortgage payment.
    • Loan Discount Points: “Points” are prepaid interest. One point is one percent of your loan amount. This is a lump sum payment that lowers your monthly payment for the life of your loan. (Many people choose to pay points to lower their interest rate). Paying down points in most cases is optional, and your lender will be able to give you the choice of $0.00 interest rate cost (based on credit score).

TITLE /ATTORNEY FEES:

  • Closing Fee or Escrow Fee: This is paid to the title company, escrow company or attorney for conducting the closing. The title company or escrow oversees the closing as an independent party in your home purchase.
  • Courier Fee: This covers the cost of transporting documents to complete the loan transaction as quickly as possible.
  • Survey Fee: This fee goes to a survey company to verify all property lines and things like shared fences on the property.  This is not required in all states, required in Florida.
  • Title Company Title Search or Exam Fee: This fee is paid to the title company for doing a thorough search of the property’s records. The title company researches the deed to your new home, ensuring thatno one else has a claim to the property.

TAXES / GOVERNMENT FEES:

  • Property Tax: Typically, lenders will want any taxes due within 60 days of purchase by the loan servicer to be paid at closing.
  • Recording Fees: A fee charged by your local recording office, usually city or county, for the recording of public land records.
  • Transfer Taxes: This is the tax paid when the title passes from seller to buyer.

PREPAIDS

Escrow Deposit for Property Taxes & Mortgage Insurance: Often you are asked to put down 3-6 months of property tax and mortgage insurance payments at closing.

GOVERNMENT LOAN FEES:

Private Mortgage Insurance (PMI): If you’remaking a down payment that’s less than 20% of the home’s purchase price,chances are you’ll be required to pay PMI. If so, you may need to pay the first month’s PMI payment at closing.

FHA Up-Front Mortgage Insurance Premium (UPMIP): If you have an FHA loan, you’ll be required to pay the UPMIP of 1.75% of the base loan amount. You are also able to roll this into the cost of the loan if you prefer.

USDA also charges an upfront mortgage insurance premium

VA Funding Fee: If you have a VA loan, you may be required to pay a VA funding fee at closing (or you can roll this fee into the cost of the loan if you prefer). This is a percentage of the loan amount that the VA assesses to fund the VA home loan program, however some borrowers are exempt from this fee. The percentage depends on your type of service and theamount of your down payment.

INSURANCE FEES:

Flood Determination or Life of Loan Coverage: This is paid to a third party to determine if the property is located in a floodzone. If the property is found to be located within a flood zone, you will need to buy flood insurance.

Homeowners’ Insurance: This covers possible damages to your home. Your first year’s insurance is often paid at closing (prepaids).

Lender’s Policy Title Insurance: This is insurance to assure the lender that you own the home and the lender’s mortgage is a valid lien, and it protects the lender if there is a problem with the title. Similar to the title search, but always a separate line item.

Owner’s Policy Title Insurance: This is an insurance policy that protects you in the event someone challenges your ownership of the home.

ADDITIONAL FEES:

Home Inspection: You will likely get your own home inspection to verify the condition of a property and to check for home repairs that may be needed before closing.

Home Owners Association Transfer Fees: The Seller typically pays for this transfer which will show that the dues are paid current, what the dues are, a copy of the association financial statements, minutes and notices.  The buyer should review these documents to determine if the Association has enough reserves in place to avert future special assessments, check to see if there are special assessments, legal action, or any other items that might be of concern.  Also included will be Association by-laws, rules and regulations.

Termite/Pest Inspection: This fee covers the cost to inspect for termites or dry rot, which is required in some states and required for government loans.  Repairs can get expensive if evidence of termites, dry rot or other wood damage is found.

REMEMBER: ***All money must be proven via bank accounts, cash will not count. All money MUST be verified on bank statements 

Take care online: There are plenty of attractive deals online, but first make sure you’re dealing with a reliable lender.

Get recommendations: Ask friends and family members for suggestions, especially if they’ve recently obtained a loan.

SPECIAL NOTE: Rates between lenders should not be very different from the other, if one is extremely lower than the other, it’s probably not the true rate, and once it goes to locking the rate after you have started the paperwork process, you may be quite surprised by a much higher rate… sometimes it can be the market…but again…before an application a lender can “quote” you any rate…and that quote especially before they actually run your credit report will not be completely accurate. Rates are now regulated.

~~Solutions. Results.Reliable~~Mortgage Lender serving Palm Coast, FL and surrounding counties.

Danielle Desousa Mortgage Loan Originator NMLS #1649268

www.ddesousa.com

Credit & Buying a Home: https://ddesousa.com/credit-and-buying-a-home/

First Time Home Buyers: How to Purchase Part 1: https://ddesousa.com/part-1-first-time-home-buyers-florida/

First Time Home Buyers: How to Purchase Part 2: https://ddesousa.com/part-2-first-time-home-buyers/

First Time Home Buyers: Down Payment Assistance: https://ddesousa.com/how-can-i-buy-a-home-part-3-assistance-programs-palm-coast-fl/

Loan Programs More: https://ddesousa.com/how-can-i-buy-a-home-part-4-loan-programs-palm-coast-fl

More on Interest Rates: https://ddesousa.com/the-down-low-on-interest-rates/

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Danielle Desousa is originally from beautiful northern Michigan, but has lived in Daytona Beach and Palm Coast Florida since 2000. She is a graduate of Daytona State College with a bachelor’s degree in Business Management and has more than 17 years of experience in the real estate and mortgage industry. As a mortgage loan originator, she uses her experience and true entrepreneurial spirit to help clients succeed in their goals as well as to bring an enhanced quality of life to families and the community. Danielle is married to Paul, and together they have one son. She is also an avid pet lover and, in her free time, enjoys going with her family (including her doggies) camping and exploring areas in their travel trailer. Danielle is passionate about her community and giving back. She is a huge advocate of Flagler Humane Society, and is a committee member of the Flagler Humane Society thrift store, and an affiliate of Young Professional Network of Flagler County Association of Realtors. Danielle is a mortgage loan originator who thrives on solutions, results, and reliability. She serves Palm Coast, FL and the surrounding counties. Call, text, or email Danielle with any questions you may have or to schedule an appointment. FLAGLER PET-FRIENDLY LENDER! As a lifelong animal lover, volunteer, and a "mom" of many pets over the years, I know the amount of love an animal brings to a family. Therefore, I feel there is no better way to celebrate your new home than by adopting a pet to make it complete. Contact me today for more information about local shelter PET ADOPTIONS!

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