To purchase a home in the United States, you generally need to put down a percentage of the home. This fee is known as the down payment. While many real estate professionals believe you should try to put down around 20% of the total purchase price, there are programs available today which allow people to purchase a home for significantly less, sometimes as little as 3% down. In addition to the down payment, a home buyer will also be faced with closing costs which typically range between 2% to 5% of the purchase price. These fees are paid at the time of the real estate transaction.
If you are a first-time homebuyer, it is crucial to be aware of closing costs, as such costs could move a home out of your price range. In many cases, certain fees are negotiable and you can always compare quotes between lenders until you are satisfied with the fees attached to the loan. Closing costs will vary drastically based on the home location as well as the type of loan. Keep reading and discover just a few examples of fees that are due when a buyer closes on their mortgage.
Credit Report
Your credit score plays an integral role in determining the interest rate a buyer will get on their home loan. Fees for credit reports are not uncommon, as there is sometimes a cost to have a credit report pulled for a potential buyer to obtain their credit score and history.
Homeowners’ Insurance
In many cases, the first year of insurance is paid at closing. Homeowners’ Insurance will cover any potential damage to the home.
Origination Fee
The lender will often charge a loan processing fee to cover their administrative costs. In most cases, it is approximately 1% of the total loan cost.
Property Taxes
You will be taxed from your closing date until the end of the tax year at a prorated rate. Property taxes vary by the location of your home.
Prepaid Interest
In many cases, the lender will request the home buyer to cover the cost of the interest they accrue from their closing date until their first payment.
Underwriting Fee
This fee covers the cost of evaluating a loan application, which determines whether or not to approve a lender for the loan.
Home Inspection
A home inspection will help to both verify the current condition of the home and to check for any necessary home repairs before the homeowner closes on the property.
Can a homebuyer avoid paying closing costs?
A homebuyer may be able to avoid closing costs. as it is sometimes possible to avoid upfront fees on a loan by choosing a no-closing cost mortgage. In some cases, the lender may charge you a higher interest rate on the loan as a result or they could include the closed mortgage fees on the total mortgage.
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