Real Estate Closing Costs:
Here's What You Need To Know

Closing Costs are fees associated with buying and selling real estate. Often, future homeowners are shocked at the added costs of buying a home because of the varied closing fees for things such as document preparation and other types of administration fees.

real estate closing costs

A closing is where the actual purchase and sale of real estate occurs. It's when the title is exchanged for the money.

Knowing what closing costs might cost will help you plan your finances accordingly and help you determine early on what you can realistically afford to pay for a home.

Lenders fees vary from state to state. However, there are certain fees you can expect to be tacked onto your loan no matter where you live. Typically you will be required to pay the following fees at closing.

  • Processing Fees – Monies paid to begin the processing of the loan. Closing costs can run from a few hundred dollars to a couple of thousand.
  • Document Preparation Fees – A fee for the write up of your loan. Costs run approximately from $300 – 400 dollars.
  • Escrow - Mortgage Escrow Accounts are made to protect the homeowner by making sure that all insurance premiums and property taxes are paid in a timely manner. Escrow guarantees that there will always be enough money available to pay these bills on time. This way, the homeowner can avoid overdue taxes and insurance.
  • Title Insurance Fees - your lawyer or legal representative will conduct a title search (also called a title examination) to determine ownership of the property in question. It involves collecting and examining, in detail, all of the public records that involve the title to the property you are purchasing.

Also, there are other fees that will be incurred when purchasing a home. Some are advanced, or one time fees, and others are fees that will have to be paid again. Check out some of the other fees that you will be required to pay when purchasing your home.

  • Loan Origination Fees – Fees based on a point system for your mortgage. Usually if you are able to pay more in a down payment, your points will be lower, thereby saving you costs on a higher interest rate.
  • Credit Report and Underwriting Fees – Depending on the finical institution running a credit report the fees will vary, but expect to pay for a detailed report on your credit history. Costs are typically around $100.00. Costs for underwriting a loan can be on the costly side – running from several hundred to a thousand dollars.
  • Real Estate Appraisal Fees – Prices vary on home price and geographic area. Independent appraisal fees usually run from $350.00 and upwards.
  • Homeowner Insurance Fees – Dependent on the financial institution a six month to one year payment for home insurance is usually required.

It's easy to see why most first time home buyers believe that there couldn't possibly be any more fees to consider when purchasing their home. However, there are other fees that they might not realize that they will have to pay to be able to move into their dream home.

Other fees include title clearance fees which insure that the title is properly titled, and cleared to and for them. Also, notary fees for the different documents associated with home buying is necessary, it makes the documents a legal and viable document.

Costs to have your documents notarized are not that expensive, but it is another fee that you must consider. Fees for recording your documents at your local courthouse are another area of cost; again they are not that costly.

This list of fees is certainly not an all inclusive list, other costs can be found when dealing with mortgage companies, or federally sponsored programs such as HUD (Housing and Urban Development). The best defense against rising cost, and subsequently defaulted loans and ruined credit, is to check out as much as you can about home owning in general, and then to wisely evaluated your economic portfolio.

Consider other factors outside of closing costs, such as long term savings and investments that will need to be managed once you retire. Never jump too quickly into the responsibility of a long term financial commitment such as home ownership unless you're sure that you can meet it.

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