Qualifying for a Home Loan
What exactly is “Closing Cost”?
Many times people mistakenly assume that closing cost is their down payment. Closing cost has nothing to do with your down payment. Closing cost does not come the price off your house. Closing cost does not go to the seller.
Closing cost is paid to 3rd party people who have either performed services (such as the title company and lender) on your loan, and to people who have charged for various other items.
Closing costs include, but is not limited to: Loan Processing fees, Loan Originating fees, Title Company closing fees/Attorney fees, Tax Services Fees, Appraisal fees, PUD fees, Courier fees, Base Commission fees and Warranty Company fees.
The fee for the Title Policy is not normally considered part of closing cost, although it is a charge that must be paid at closing. There is a separate charge for the policy itself. The title policy is an insurance policy on the title (deed) to the property. This title policy says the title company and/or attorney has searched all public records and they have found no liens or encumbrances on the property. They are stating you will now own the property free and clear. If anything should come up at a later date, they agree to make good on the title.
Taxes and Homeowners Insurance are not considered a closing fee. They are paid at closing, but they are typically referred to as “pre-paids”. Taxes and insurance are collected in advance for future service and payment to the tax assessor’s office and to the insurance company for your homeowner’s policy.
Closing cost can be paid by the buyer or the seller. Typically all of the cost mentioned above should run approx. 3 – 4% of the total sales price