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WHAT TO EXPECT FOR RESIDENTIAL PROPERTY CLOSING COSTS Closing Costs Lenders are required to give you a good faith estimate of the costs associated with the loan whenever you apply for a loan. The costs of the following services should be described in that document. Costs usually range from 3 to 5 percent of the loan. · Sales/broker commission – Typically, the seller will pay the REALTOR® a commission, which is based on a percentage of the sales price. · Loan origination fee or points – This fee covers the lender’s administrative costs. This fee is often expressed as a percentage of the loan and will vary by lender. The buyer may also choose to pay additional points to receive a loan with a lower interest rate. · Credit report – This fee covers the credit report that was ordered when you applied for the loan. Lenders often collect this fee when they take your loan application and then may appear as a credit on a closing statement. · Appraisal – An appraiser is hired by the lender, but paid by the buyer, to estimate the value of the home. The appraiser compares the property to others in the area and assesses the physical condition in order to determine the fair market value of the home. The appraisal helps the lender calculate the loan-to-value ratio (LTV). · Mortgage insurance - Your lender may require that you purchase mortgage insurance. At closing you may have to pay the mortgage insurance application fee as well as the first year’s premium. Mortgage insurance can be avoided by having at least twenty percent down against the purchase price of the home. · Mortgage broker fee – If you use a mortgage broker, you will pay his or her fee in closing. · Title services, search and insurance – The title is the paperwork that asserts ownership of the property. Your attorney will complete a title search to insure that there are not any unknown owners of the property and to ascertain outstanding loans or liens on the property. Title insurance protects your interests and rights as the new owner. The owner's policy will protect you against claims by others against your ownership of the new house. The title search and owner and lender’s fees will show up on the HUD-1 form. · Interest – Your lender may require you to pay the per diem interest that will accrue from settlement date to the end of the calendar month. · Insurance – Beyond mortgage insurance, you will be required to come to the closing with a year’s premium of hazard (or homeowners) insurance and flood insurance, if required. (For more information, see FEMA’s page on flood insurance http://www.fema.gov/fima/). · Escrow deposits – You will make payments for certain services and taxes into an escrow account. These monies are held in an escrow account and are used by the lender to pay the property taxes and insurance premiums as they become due. · Document preparation – Some lenders or title companies charge this fee to cover their cost of preparing the final legal documents. · Notary fee – This fee is charged for the licensed notary public who witnessed signatures. · Attorney’s fees – The lender may require that you pay for your legal services. · Real estate transfer tax and mortgage recordation fee – These taxes, paid by the buyer or the seller, are for legally recording the new deed and mortgage. Fees depend on the government where the property is located. In Tennessee, the state charges $0.37 per $100 of the purchase price ($370 on a $100,000 home). In addition, if you have a mortgage on your new home, you will have to pay a tax of $0.115 per $100 on all but the first $2,000 of your mortgage. · Survey and other inspections – You may have to pay other fees as required by the lender, such as a survey and pest inspections.
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