A common issue that JMAC’s brokers see when it comes to the home buying process involves confusion over closing costs. Closing costs are what their buyers pay out of pocket at the closing table and is not included in the purchase price, down payment, or mortgage loan amount.
Our brokers explain that closing costs cover a variety of fees which cover lender charges, third-party service provider charges, government/municipal charges and escrow funding. Lender charges include origination, processing and underwriting charges, pre-paid interest to buy down a rate and interest charged for the days after closing. Third-party service provider charges include property appraisal, survey and elevation certificate, credit report, insurance, title company or attorney fees, title search, inspections and real estate commissions.
Government/municipal charges also include property taxes, recording charges and other transfer taxes. Finally, escrow funding includes monthly insurance and property tax payments being collected and held in an escrow account so there is enough money for the borrower to pay the next insurance and tax bills when they are due. In some cases, up to 6 months of tax payments may need to be paid into escrow at closing.
JMAC’s brokers explain that some closing costs can be paid outside of closing and therefore do not show up on the HUD-1 Settlement Statement or Closing Disclosure, such as an appraisal, credit report or home inspection. Closing costs are usually not included in the loan amount on purchases but there are certain government programs that do allow for some of these fees to be included. On refinances, the closing costs may be included in the loan amount if the LTV is below the maximum ratio and with the Loan Estimate in place come October, final closing costs cannot exceed certain variances.
Sure enough, our experienced brokers know that if buyers have a better understanding of closing costs a smoother transaction can take place, mitigating any issues that could arise.