Closing Costs

DETERMINING CLOSING COSTS

Worried about closing costs for your new home? Relax. Even though you won't know what the actual costs are until you're at the closing table, the law is on your side. RESPA, the Real Estate Settlement Procedures Act, to which residential real estate purchases secured with a mortgage must conform, requires your lender to provide you with a good faith estimate of what those costs will be.

Closing costs are not part of the price you're paying for the property you're buying; most are expenses associated with obtaining a mortgage loan.

One of the most important things to remember is that closing costs are negotiable. Your real estate agent or attorney can help you bargain with the seller and your lender to reduce or even eliminate some of them altogether.

Typical costs paid at closing include:

• Loan fees: These including your loan origination fee, which is usually a percentage of your loan amount. This percentage isn't set in stone, but varies from lender to lender. If you choose, you may also pay a one-time loan discount fee (also known as discount points) to your lender in exchange for the lender's lowering your interest rate.

  Each point is equivalent to one percent of the loan amount and will lower your interest rate by 0.125 percent. If you are obtaining a 30-year loan at 7.5 percent, buying one discount point will lower your rate to 7.375 percent. Several factors must be considered when determining if purchasing discount points will save you money, including how long you plan to keep the loan—so do the math before you commit to buying them.

• Appraisal fee: This is the fee your lender paid an appraiser to determine the current market value of the property you want to buy.

• Credit fees: The cost your lender paid to obtain your credit report. Your credit score is a major factor lenders consider when deciding whether or not to grant you the loan.

• Inspection fees: Your lender may also charge you an inspection fee if the home you are buying or building is still under construction at closing. build or buy home that's under construction. Inspections costs also include tests for radon, termites and other specialized inspections performed on the property prior to closing.

• Insurance fees: If your down payment isn't large enough for your lender to approve your loan without requiring that you obtain private mortgage insurance, your lender may charge you a mortgage insurance application fee.

Homeowner's insurance is another requirement. It protects you and your lender from damage to your home caused by fire, windstorm, and other hazards. In addition if your new home is located in a flood zone you will need to purchase flood insurance.

• Legal and Loan Assumption fees: These cover your attorney's work and the additional work your lender performed if you are assuming the seller's existing mortgage.

Closing Costs Paid in Advance

Lenders want to be sure the money's there when next year's property taxes and insurance premiums become due, so most loans include prepayment that go into an escrow account for this purpose; however, RESPA (Real Estate Settlement Procedures Act) limits the amounts your lender can require you to pay in advance.

Other closing costs are charges for home warranties, recording fees for having your deed and other documents relating to your real estate purchase recorded in public records. They can also include fees for sending documents to your lender overnight and fees for wire transferring funds.

Some states charge a document stamp fee, typically calculated at a set rate per $1000 of loan value. If you are purchasing a condo or a home located in a neighborhood with a HOA, you may need to pay HOA fees.

Remember, this is general list of typical closing costs. You may not have to pay for each of the costs listed, and in addition, you may have additional fees that are not listed here. The best way to know how much money you need to budget for closing is to ask your lender, your attorney and your real estate agent to provide you with lists of the closing costs they anticipate. Compare those lists to be sure all the bases are covered and then see which fees you can lower through negotiation.