Many first-time home buyers do not know what to expect at a house closing. You should know that you are going to need more cash than just your down payment. When you submit your application for you loan, your lending institution will give you a Good Faith Estimate which will inform you fairly closely what the house closing costs will be and you can prepare accordingly.
A good way to be prepared for the house closing is to ask for a good faith estimate (GFE) once your application is in. By law, lenders have to tell you what they estimate house closing costs will be, as well as your annual percentage rate (APR) within three days of your applications submission. Subsequent negotiations and adjustments will probably alter the cost slightly after the first application, but you still have a right to know how much it will cost.
First Time Home Buyers May Have Fewer Choices
Most lenders have at least a couple of different options for fee payment. Some institutions offer a “no cost” loan that allows you to purchase a home with little or no out-of-pocket cost, which is attractive to first-time buyers. Be warned that you will have a higher interest rate than the average mortgage borrower. You also have the option to put more money down through buying points and therefore lower your interest rate. Shopping around for the best rate is ideal if you have the leisure time and resources, but many first-time home buyers are more concerned with coming up with house closing costs. Discussing options in detail with your lender will provide you with the most valuable information.
Educate Yourself in the Purchase Process
Lenders may charge a one percent origination fee in addition to a processing fee. This processing fee can range from a few hundred to thousands of dollars. If you are using a mortgage broker, there will also be bank fees. Some of these bank fees include items like an underwriting fee or a “doc prep” fee, and usually runs between $600 and $995. When your lender gives you a GFE, it will have title fees and appraisal costs itemized as well. These fees will vary directly depending on the loan amount, and are usually between $1,000 and $2,000. An appraisal fee starts at $350. With the number of varying factors at play when purchasing a home, getting a GFE from your loan officer is essential to the process.
Tax, Prepaid Interest and Insurance Payments are Placed into an Escrow Account
Financing fees are only one part of the house closing costs. To make sure you get funding for your home purchase, you must have proof of insurance as well as one year’s worth of insurance premiums. In this way you will have secured your investment along with the banks. Tax on your new home and any prorated interest will be tacked onto the house closing costs.
Just to repeat, make sure that you are on top of all the house closing costs, so that there won’t be any embarrassing surprises at your house closing.
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