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Closing Cost

Closing cost are confusing, and as all other points in a contract, they are negotiable

 Everything is negotiable - But, expect the cost to be included if you want the seller to pay them

Some loan programs have limits on how much can be paid by sellers

Appraisers must justify the market value of the property and that number may not cover closing cost

Appraisers get a copy of the contract and it is against several laws to hide things from them or have dual contracts

Buyers and sellers must be informed of the true cost of the sale

Sample of a required HUD1 Form with explanations

Excell worksheet fill in the blanks for your closing cost

HUD Booklet on closing cost

RESPA Federal law on real estate transactions

Agents are required to prepare a "Net Sheet" of your estimated closing cost at the time of an offer

"Net Sheets" are the agents best estimate of cost associated with the transaction

Rule of thumb on cost - the party that benefits, pays

Even so, the cost may be added to the price then the seller pays.

The following is a list of most cost:

Buyer Cost if financed:

  • Down payment possibilities
    • VA  (Veterans) No money down  There are up front fees that can be put into the loan
    • FHA minimum down is about 4%  Mortgage insurance will be added 1% +
    • Conventional loan is 20% down with no mortgage insurance cost
      • If your credit is really good, you may be able to get a second mortgage for part of the balance
    • Rural & Bond money may be available depending on area; check with lender for details
  • Loan cost - Fees from lender     Lender Required Good Faith Estimate GFE
        These fees cover many different things including an Appraisal to flood Zone certification
    Typical loan origination fee is about 1% of loan amount
    • Depending on the lender and type loan, fees will be from about 3% to over 5% of the loan amount
  • Points are a percentage of the loan amount lenders charge to increase their yield  (up front interest)
    • 1 point = 1% of the loan amount
      • 1 point increases lender's yield about 1/8%
  • Mortgage Insurance covers the risk to the lender of default
  • FHA Mortgage insurance
  • Depending on loan type amount will be an upfront fee plus a percentage on the loan every month
  • Title Insurance  Covers things that have happened in the past that may effect title to the property
         There are two types of policies, Owner and Lender, if both issued, cost are normally split
  • 1% to 2% of loan amount
  • Extended coverage policies will cover things that may not be known or recorded yet
  • Homeowner Insurance - Fire and other hazards, but not flood
    • One year paid in advance, plus 2 months into an escrow account for next renewal
        Depends, but will be less than 1% of purchase price
          Let your insurance agent know you are going to buy a home and they may have some discounts
      • Lenders will be sure this policy is paid to protect their investment
  • Home Warranty  About $500, depending on home,- Optional, covers systems like Heating and Air  breakdown
  • Home Inspection  $400+  This is usually paid before closing when the inspection is done
    • Don't think you are saving by not getting an inspection!
    • Remember that Alabama is the last buyer beware state
    • The seller does not have to volunteer any negative information, except health & safety issues
  • Attorney Closing Fee
    • Depending on complexity  $500+, usually split between buyer and seller if home financed
    • The attorney represents the mortgage company, but will answer general questions pertaining to the closing
  • Property Tax
    • Prorated to time of closing from October 1st , plus 2 month to escrow reserve for next year
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