Lets start with Taxes…
Property taxes are due twice a year in December and in April. When you buy a house either the seller owes taxes or has to pay taxes. In either case you are going to be responsible for a portion of the taxes going forward. After close you will get a supplemental bill adjusting the tax base to your new purchase price. In our good faith estimate we typically put in 6-8 months worth of taxes because at the very least you will be responsible for setting up an escrow account for your taxes and insurance so that you can pay them monthly instead of biannually.
Closing costs consist of all the items that happen when a transaction closes.
The lender’s fee is typically known as an origination fee or points. It is based on the loan amount and can vary depending on interest rate. It can be as low as “no points” but your interest rate will be higher in that case. It can be 2 points and your interest rate will be lower. In addition rates move around a lot every day and so it is difficult to actually settle on a rate when the closing date is uncertain.
While it looks like the lender makes a lot he has to split the 1% of the loan amount with his company, pay for his office, pay his taxes, pay assistants and a whole host of other items out of that fee. He is also probably charging for a lifetime of experience that is embedded within the advice he gives you and the work he does to arrange the loan.
Title companies perform many tasks and get paid accordingly.
They insure the property you are buying and they provide higher level of insurance to the lender that the property title is what is represented so you pay for two title insurance policies.
They also perform escrow which essentially is the middle man holding all the money and the deed. When everything is a go then they give the deed to the buyer and the money the seller.
Appraisal fee seem obvious but someone is going to come out to the property and make sure it is what it is supposed to be. Everybody on your side of the transaction wants to make sure you are paying fair market value for the property. The appraiser looks up all the comparable sales in the vicinity and compares your property with them. If they appraise the property for less than you agreed to pay, it’s referred to as coming up short and you will be required to pay for the difference. We hope that doesn’t happen. Lenders and real estate agents have no control over the appraisal. It is a completely independent process.
The lender in this case has a whole army of people doing many things to get your loan to close on time including but not limited to a processor, doc drawer, underwriter and funder. For that they charge a processing fee and Doc fee. FHA underwriting is extremely cumbersome and the hours it takes to put these loans together correctly is mind boggling. Especially these days.
A notary public is required to make sure you are who you say you are and they need to put their stamp on any document that is going to become public record.
The county recorders’ office charges 5$ a page for all items to be recorded and you will have the deed of trust that is 12 pages long that gets recorded.
Because the first sign of foreclosure is failure to pay property taxes the lender requires that you pay a tax service contract that reports back to the lender if you don’t pay your property taxes.
You never know what may come up so I am throwing misc fees in there. This may include a fed ex charge or a traveling notary fee or realy any other item that I can’t think of right now.
What is most important is that you realize that there are other costs besides the down payment. Typically these days when dealing with a short sale the seller credits back to the buyer a certain portion of their closing costs (up to 3%) and we allow for that…these fees always exist regardless for who pays for them.