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Quelling Closing Confusion: Breaking Down Closing Costs and More

Quelling Closing Confusion: Breaking Down Closing Costs and More

Going through the home-buying or selling process? For buyers and sellers, alike, there may be nothing more exciting than when closing day finally arrives. However, for many, closing day also can bring a lot of confusion.

Yes, closing often lasts only a few hours, but the proceedings can be complicated by an abundance of fees, paperwork, more fees and more paperwork! The best way to ensure a confusion-free closing day is to be as informed as possible about what actually takes place around the closing table.

Although everyone’s closing may be slightly different, there are some common things to expect when closing day arrives:

First of all, there usually are a standard few people in the room during the closing process. Those players include buyers and sellers, along with their real estate agents and/or attorneys. There also will be a representative from the title company and could even be a lender representative.

Now, onto the responsibilities for closing day. Buyers, unless you’ve previously negotiated differently, you’re typically responsible for the bulk of closing costs, which can amount to as much as 5% of your new home’s selling price. These costs are due at the time of closing, do not include the money you’re borrowing for your mortgage and cannot be lumped into your monthly mortgage payments.

One of the largest fees when it comes to closing costs is an escrow deposit fee, which covers property taxes and private mortgage insurance. Another significant fee that is paid to your lender is the cost of buying down your interest rate, if you’ve chosen to do so.

Additional common closing costs can include, but are not limited to the following fees:

  • Loan application and origination fees
  • Attorney fees
  • Inspection, appraisal and surveying fees
  • Broker fees
  • Notary fees
  • Document preparation fees
  • Title insurance, search and recording fees
  • Underwriting fees
  • Credit report fees
  • Tax service fees
  • Hazard insurance premium fees

Obviously, fees are a large part of closing day, but the amount of those fees should not be a surprise that’s waiting for you once you get to closing. Lenders are responsible for providing a good faith estimate (GFE) of closing costs within a few days of applying for a mortgage. But, repeat the term, good faith estimate – you won’t have the exact amount of your closing costs until about 24 hours before your scheduled closing. For that exact amount, your lender will provide a HUD-1 statement that will detail the cost breakdown. To make sure that you’ve received a fair GFE, solicit a few lenders and choose the one that is best for you.

Now, a few words of warning when it comes to closing day. Oddly enough, the time of the month that your closing is scheduled can affect the amount of your closing costs. Closing at the beginning of the month actually can make your closing costs rise. Trying to plan your closing about five to ten days before the end of the month is ideal, because these dates allow for any last-minute hang-ups that may delay closing a day or two.

Buyers are permitted to do a final walk through inspection 24 hours before going to close and it is not something to be skipped. Although all homes should be in move-in condition, this is a final opportunity to make sure there are no outstanding issues before a buyer assumes responsibility for maintenance and repairs.

Finally, after a buyer has been approved for a mortgage, it is not a good idea to go credit crazy. Lenders will run a final credit check before closing day and any new lines of credit will show up. Unfortunately, if a buyer’s financial circumstances change significantly, closing could be delayed or cancelled.

Though it may seem like this is a lot of information rolled up into one day, anyone going through the closing process can take comfort in knowing that most closings are completed relatively smoothly and typically last only a few hours. So, as your closing day approaches, be as informed as possible, bring your real estate agent and get excited; your closing process is nearly complete!

This post is sponsored by PA Preferred Mortgage:

Pennsylvania Preferred Mortgage is a full service mortgage banker and is a member of the Prosperity Home Mortgage, LLC family. Specializing in residential and refinance loans, Pennsylvania Preferred Mortgage offers a wide range of mortgage products, including fixed and adjustable rate mortgages, jumbo loans, Federal Housing Administration (FHA) and Veterans Affairs (VA) loans, and renovation financing. Learn more at www.papreferredmortgage.com.