Closing costs home buyers can expect

There are a number of costs that a buyer needs to pay in order to close the transaction. Such costs are known as closing costs.

Most buyers are not particularly fond of closings, simply due to a lack of understanding regarding these costs. You must demand all the components of the closing costs from your real estate broker or realtor. He or she should ideally provide you with a document known as the “good faith estimate,” which will indicate an approximate amount you should be prepared to pay at the time of closing.

One has to understand that most of the closing costs are not related to the amounts payable to the real estate broker or realtor, but are expenses payable to the lending institution and for insuring the house. Closure costs are classified into mortgage-related costs and general closure costs.

Mortgage-related costs are fees the buyer has to pay in case he takes a mortgage loan; general closure costs are costs, which, by and large, have to be borne by all buyers. It will help you to understand which of these expenses are recurring in nature and which are merely one-time expenses.

Expenses towards home loan repayment, insurance premiums and property taxes are recurring expenses while fees payable to attorneys, home inspectors, accountants, etc. are to be paid only once. A careful classification of the amount and nature of expenses will help you plan your finances better for the closing session and enable you to be better prepared for it.

Mortgage-related costs include:
· Loan administration and processing fees payable to the mortgage institution towards your home loan. This varies between 0.75 percent -1.5 percent of the value of the loan.
· Application fee – This refers to the fixed charges that you bear for applying for a home loan and is payable to the lending institution.
· Private Mortgage Insurance (PMI) premium – Payable if the loan taken is greater than 80 percent of the value of the property appraised by an appraiser.
· Homeowner’s insurance – Premium payable to insure your home.
The estimated closing costs, according to most analysts, would be close to 5 percent of the total amount of the mortgage loan being taken.

General closure costs include all the costs that one would incur whether one makes use of home loan or not to fund the purchase. Such expenses would include charges towards home inspection, brokerage fees payable to the realtor or the broker, professional fees payable to attorneys and accountants, fees payable to the title company and all fees related to recording the property documents.

It is advisable that you understand each and every component of closing costs. Not only does this increase your awareness about the workings of the real estate market, but it also gives you knowledge for future dealings. Seek your accountant’s advice on the tax concessions available with closure costs and save on those dollars by making use of the available tax provisions.

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