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Closing Costs Explained
May 31, 2016 — 2 min read
What Are Closing Costs?
Closing costs, fees paid in addition to the loan and down payment amount of a mortgage, often come as a surprise to first-time homebuyers. Especially if these home buyers are young adults. In a national study done by ClosingCorp, they revealed that the majority of millennials (ages 18-34) are unaware that closing costs exist. They also found that 34% of all potential homebuyers are "Not Very" or "Not At All" aware of closing costs. Not understanding all of the costs in a real estate transaction and how they are all related can be an impediment for first-time homebuyers who want to get into the market. It is important to educate your clients, especially millennials so that they understand all financial aspects when purchasing a home. Closing costs typically equal 2 to 5 percent of the total purchase price of a home. The fees can be paid by either the buyer or the seller dependent upon the purchase agreement. Below are some common closing costs to finance a home:Lender Charges
- Origination, processing, and underwriting
- Mortgage discount points used to "buy down" a rate
- Prepaid interest (per diem interest due between the closing date and first mortgage payment)
Third-Party Service Provider Charges
- Real estate commissions
- Inspection fees
- Escrow fees
- Title company fees for title searches, title insurance, and endorsements
- Property appraisals
- Survey and elevation certificates
- Homeowners, hazard or flood insurance
- Credit reports (PRM does not charge for these!)
- Attorney fees if applicable
- HOA dues
Government/Municipal Charges
- Property taxes
- Recording charges
- Eligible city or county transfer taxes
- Stamped deeds and mortgage notes
Escrow Funds (amount collected varies with closing date and due dates)
- Property tax reserve accounts
- Homeowner's insurance reserve accounts
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