Things Your Mother Never Told You: Closing Costs

You Gotta Have Faith!

Three days after an initial application has been submitted the lender must provide a Good Faith Estimate of settlement costs (GFE). The GFE is a list of closing charges and the HUD settlement statement you receive at closing is the confirmation of these charges. Carefully review the GFE costs and question anything you do not understand. When you receive the HUD statement the charges and fees should be familiar to you and reflect the GFE. There shouldn’t be any closing cost surprises. If the GFE and HUD costs do not match these issues should be addressed immediately. Discuss the cost discrepancies with your REALTOR and a lender representative. Any costs not disclosed on the GFE can be argued against and removed from the HUD.

Closing Costs 101

The first page of a HUD shows the buyer what matters most, the exact amount due at closing. Charges associated with a loan are broken down into sections. Lender costs include fees for origination, discounts, appraisal, credit reports, underwriting and processing. Closing and title costs cover charges from the third party closing agent and for the title search, insurance and recording. Taxes will be listed and fees associated with the deed. The buyer may also create an escrow account holding prepaid funds so taxes and insurance payments are made on time by the lender each month. The REALTOR commission will also be listed, along with survey fees, if necessary.

Financial Responsibilities of the Seller

At closing, the seller also has financial responsibilities. The seller pays sales taxes and lawyer, titling and commission fees. If necessary the seller is held accountable for outstanding Home Owners Association fees, termite and moisture inspection charges and well water and septic testing. Repairs that need to be done to the property will be taken out of the seller’s proceeds. Liens owed by the seller must also be paid, including tax liens. The seller must insure the home until the deed to the property is recorded a few days after closing. The buyer must have insurance activated on the closing date.

Invest and Save Money

Most homebuyers know that a down payment helps save money because it lowers the loan amount and mortgage insurance. This reduces the monthly payments. It also qualifies you for mortgage programs with better rates. Another savings tip is to pay your closing costs up front with the down payment. Avoid rolling the closing costs into the loan itself or the loan and interest increase. Without funds to cover the down payment and closing costs you will want to refinance later. Another important investment homebuyers should make is to work with a mortgage broker. A mortgage broker will shop for the best loan and interest rate. The knowledge a mortgage broker has can equal savings of up to $50,000 in interest charges. If you have credit issues or just want the inside scoop a mortgage broker is your best choice.

Completing the Transaction

The closing is an exciting day for both the buyer and the seller. The buyer should bring the GFE for reference during the meeting and request to review the HUD 24 hours in advance. This means you are prepared and comfortable with the completion of the real estate purchase. A third party closing agent and the REALTOR will be present. The loan officer or mortgage broker can also be present to answer any questions regarding the loan. Some companies, like Breakwater Mortgage in Virginia, require their brokers to attend. Companies like this can be better to work with since they are willing to be more involved. Now that all questions have been answered and the sale has been completed you can look forward to your new home and focus on the future!