Understanding Closing Costs

Helping Homebuyers Understand Closing Costs

Closing costs, fees paid in addition to the loan and down payment amount of a mortgage loan can vary, confusing some homebuyers. Homebuyers without enough cash to pay the closing costs upfront often roll their closing costs into the amount of their loan; provided they qualify for the bigger loan and don't exceed their required loan-to-value (LTV) ratio.

Interest rates can affect closing costs as well. Bankrate.com's 2015 survey of closing costs showed a 7.1% decrease in closing costs for homebuyers in 2015. While average origination fees dropped as rates remained historically low, third party fees increased with inflation. Additional TRID regulatory compliance expenses to lenders and closing settlement agencies may lead to increasing closing costs for borrowers.

Here are examples of 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 closing date and first mortgage payment)

Third-Party Service Provider Charges

• Real estate commissions
• Inspections 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
• HAO 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

Buying a home is a major financial undertaking. Opportunities to help offset closing costs such as lender credits or writing seller credits into a purchase agreement are great ways to help homebuyers achieve their homeownership dreams.

PRM strives to educate clients and referral partners on all aspects of a home finance. Contact us today!