When you have finally reached agreeable terms on your new home, the process begins to take off, and it actually moves rather rapidly. Sometimes so quickly that we tend to forget some very important expenses along the way. In the midst of the chaos, you should remember and be aware of the potential closing costs associated with the loan, and you should really set a budget for closing costs.
The Budget
Closing costs essentially are the collection of fees for the little things involved in the purchase of a house. If you haven’t ever purchased a home before, you may be surprised to find out how expensive these fees can get, and how fast they add up. If you do not properly prepare for these fees, they can cause serious problems in the closing process, and sometimes you may lose the house.
Specific Fees
Origination fees
One of the most important fees to look at is what’s called the Origination fees. These are fees charged by the lender for their “research” on the potential borrower (you). This includes finding and analyzing your credit report, property appraisals, and more. Most lenders will also have the audacity to charge you to prepare the various documents, and “processing” the loan (whatever that means).
Points
“Points”, are another thing to consider. These simply are a percentage of the loan that you will be required to pay. Most of the time this is about 1 or 2 percent of the total loan amount, so you can see how expensive that can get.
Private Mortgage Insurance
Another nice little surprise you will often be faced with is what’s called PMI, or Private Mortgage Insurance. If you intend on making a down payment on the house, and that down payment is less than 20%, you can surely expect to pay PMI. This is just a fancy term for insurance on the loan that the lender will require. This protects them in the event that borrower defaults on the loan. The PMI fee can be hundreds of dollars, so make sure you know before you plan you budget, how much you will be expected to pay.
Most people who have bought a home will tell you that the closing process is the worst financial process they have ever gone through. As a person who owns multiple homes, I can absolutely understand their pain. The biggest reason people are so upset with the process, is because they simply didn’t plan or expect the charges and fees they had to pay. If you are aware before hand, and budget for these expenses, it can make the entire closing process a little easier for you.
