What are Closing Costs?
The Difference Between Closing Costs, Prepaids, and a Down Payment
There are certain costs that are associated with buying a home and obtaining a mortgage. All of these costs are outlined for you on your LE or Loan Estimate.
Your Loan Estimate will show you every charge associated with your purchase or refinance, so that you clearly understand what you are paying and to whom you are paying it.
All these costs can be classified under 3 categories: Closing Costs, Prepaids and your Down Payment. Below is a summary of the charges you can expect in each category. As always, make sure you obtain a Loan Estimate to get the exact figures you will be charged for your specific mortgage.
This is best described as money paid to others for the work completed to obtain a mortgage for you.
- The cost associated with "originating" your loan. This could include and origination fee, processing fee, or lender administration fee. This is basically the charge to cover the cost of processing your loan.Points
- This is the fee you pay, if you so choose, to obtain a lower interest rate than typically offered. Appraisal Fee
- this is the fee charged by an appraiser for determining the value of your homeCredit Report Fee / TRV/ Flood Cert Fee
- These are fees paid to 3rd party companies, which provide the information needed to approve your loan such as your credit score, tax transcripts, and the determination if your home is in a flood zone. Transfer Taxes and Recording Fees
- Are fees paid to the county you reside in for recording the mortgage and keeping a record on file. Title Fees and Settlement Fees
- These fees are charged by your attorney or settlement agent for completing the research on the title to your home and for reviewing the closing documents with you and performing the "closing"
Prepaids simply refers to the amount you pay for homeowners hazard insurance and county property taxes. Typically, you will pay the first yearly premium for your homeowners insurance, and the first year of county property taxes and closing. If you are purchasing a home, the seller will be responsible for part of the property tax, depending on how many months of the year they owned the home prior to selling.
Your Down Payment is the amount of money you are paying in cash towards the purchase of your home. This is not the same as money paid for closing costs and prepaids. The down payment is subtracted from the purchase price of the house. For example, if you are buying a home for $100,000 and paying $3,000 as a down payment, then your loan amount will be $97,000 and you automatically have equity in your home! The amount of your down payment will be brought to closing, along with any closing costs or prepaids not covered by the seller.
PrimeMax Mortgage Group can answer questions about these closing costs. Give us a call at (256) 543-9211.