Closing Costs On Home Loans
Closing Costs On Home Loans Explained:
There are always closing costs on home loans. Every mortgage loan, whether they are home purchase home loans or refinance mortgage home loans, there are closing costs on home loans. Whether it is a home purchase mortgage loan or a refinance mortgage loan, the mortgage loan borrower will incur closing costs. Closing costs on home loans can be paid by a sellers concession or lender credit on a home purchase transaction. Closing costs on a refinance mortgage loan transaction is paid out of pocket by the homeowner doing the refinance mortgage loan or it can be paid by the mortgage lender doing the refinance mortgage loan through a lender credit towards closing costs in lieu of a slightly higher mortgage rate.
What Are Closing Costs On Home Loans?
There may be closing costs customary or unique to a certain locality, but closing costs on home loans are usually made up of the following:
- Attorney’s or escrow fees (yours and your lender’s if applicable)
- Property taxes (to cover tax period to date)
- Interest (paid from date of closing to 30 days before first monthly payment)
- Loan origination fee (covers lender’s administrative costs)
- Recording fees
- Survey fee
- First premium of mortgage insurance (if applicable)
- Title insurance (yours and your lender’s)
- Loan discount points
- First payment to escrow account for future real estate taxes and insurance
- Paid receipt for homeowner’s insurance policy (and fire and flood insurance if applicable)
- Any documentation preparation fees
FHA Closing Costs
FHA closing costs can get rather expensive. The upfront mortgage insurance premium is 1.75% of the FHA mortgage amount. There are also title charges, transfer stamps, tax stamps, attorneys fees, loan origination fees, appraisal fees, inspection fees, and other closing costs that could run into thousands of dollars. There are many instances where the FHA home purchase closing costs is more than the down payment of the home purchase.
Help With Closing Costs On Home Loans
There are two possible solutions for a home buyer with a FHA mortgage to seek help in covering his home purchase closing costs. First, he can ask the seller for a seller concession, or seller contribution to assist the buyer with the closing costs of the home purchase. By law, the seller can contribute up to 6% toward the buyer’s closing costs. If the closing costs doe not cost the whole 6%, the buyer cannot keep the difference and the difference goes back to the seller. If the seller is not willing to provide a seller’s concession or seller contribution, the FHA mortgage loan borrower can have the mortgage lender pay the closing costs in return of taking a higher interest rate. The mortgage loan borrower may pay an extra 0.25% to 0.50% higher rate in lieu of getting a lender credit towards paying for closing costs.