What Are Closing Costs?
You're looking for your dream home, the seller is out there waiting, you've seen a ton of beautiful homes, and you're eager to move forward with the process. But before you call your lender, let's take a look at the big topic.
Also called the settlement, the closing is the process of passing ownership of property from seller to buyer.
Most of the fees associated with a real estate transaction come from the buyer's new loan. At closing, you'll be presented with a seemingly endless stack of paperwork and docs to sign. Most of those docs come from fees tied to the buyer's due diligence in connection with the loan.
Let's take a look at the closing costs from a real estate transaction in Charlotte NC.
Appraisal Fee: The appraisal fee is one of the first fees you'll encounter in your transaction. It is one of 3 fees you'll typically pay on your way to closing. In the Charlotte area appraisal fees range from $400-525.
Credit Report Fee: The lender will request your credit report, sometimes more than once throughout your transaction all the way up to the day of close.
Loan Origination Fee: The lender charges a fee to collect your information and qualify and process a loan for you. They'll typically charge about one percent of the loan amount; however, it's important to ask the lender what their fee is and how they'll be paid.
Loan Discount Points: Your loan has an interest rate. You can pay a one time fee to the bank permanently lower the interest rate. The bank will tell you how much it costs to buy down the rate, usually, one point costs 1 percent of the total mortgage amount.
Title Insurance Fees: The lender and often the attorney will require the buyer to purchase a title insurance policy. Title insurance protects the buyers, sellers, and lenders in cases of defect or disputes involving title.
PMI/MIP Premium: Lenders charge PMI or private mortgage insurance and MIP or mortgage insurance premium fees when they believe a buyer poses a risk. Mortgage insurance is designed to protect the lender against loss due to foreclosure. Once you reach 20 percent equity in their home, you can reach out to the lender to have the condition and payment removed.
Prepaid Interest Fee: From the date, you close until you pay your first mortgage payment, interest accrues on your loan.
As a rule - your prepaid interest fee will be higher, early in the month than if you buy your home near the end of the month.
This because the interest builds each day until your first payment.
Escrow Accounts: Your mortgage lender will start an account to holds funds for your future annual property taxes and homeowners insurance payments.
When you start your policy to buy a home, the insurance company will require at least one-year advance worth of homeowner's insurance premium will be collected.
The attorney will collect taxes from the seller for the period they lived in the home.
The seller will pay the portion of tax bill up to the day of closing. The funds will come from their escrow account and go into your new escrow account established by your lender. These funds will be used by the lender once the tax bill comes due.
Recording Fees: Recording fees will cover registering your deed and any other legal documents related to your closing at the County Registrar's office. These fees are typically associated with transferring ownership of the property.
Transfer Fees: Transfer fees or real estate excise taxes in the State of NC are $2 per $1000, or the tax rate is 0.002 percent. Multiply the real estate sales price by the tax rate. Example, $400,000 x 0.002 = $800.