WHAT ARE CLOSING COSTS?
This is by far the most common question Real Estate Agents get asked regarding financing your home purchase: “What are closing costs?” It is important to know that both Buyers and Sellers pay a portion of the closing costs. Here you’ll find a breakdown of exactly what buyers pay when buying a home in Pierce County.
Closing Costs and Pre-Paids are frequently bundled as one-in-the-same. I am going to differentiate between the two, here. Just know that when you here “Closing costs” the lender or whoever is speaking about them are likely referring to both.
HOW DO I PAY MY LENDER FOR THEIR SERVICES?
The Lender does a lot of work behind-the-scene. And their work is paid by you, the borrower, at closing.
- PROCESSING FEE – Each loan has specific debt-to-income requirements and credit score minimums, etc. When qualifying for your loan, the lender or their team investigates these things to ensure you are qualified. The processing fee pays for a portion of the lender’s time.
- UNDERWRITING FEE – Every loan has to be approved by a licensed loan underwriter. It’s another set of eyes ensuring that you’re qualified to make the real estate investment and the lender has all of the documentation they need from you. The underwriters are a part of any lender’s team to qualify buyers for their real estate purchase.
- DISCOUNT POINT(S) – If you chose to buy down your rate (ie. purchase a lower interest rate), you’ll be charged “discount points.” If you plan to live in your home for 10+ years, I advise you to think long and hard about this, as a lower interest rate may pay for itself and then start saving you money after just 4 – 7 years. Your lender will be able to calculate when the discount points will pay for their self. Which makes the decision easy for you!
- APPRAISAL – It varies from lender to lender, whether you pay for this at closing or when the appraisal happens. In Tacoma’s Real Estate market, you can expect your appraisal fee will cost, at minimum $750. If we need to order a rush on the appraisal, expect to pay an additional $100 – $200.
- CREDIT REPORT – Yes your credit has to get pulled and yes you will be charged a small fee for this. In conclusion, the minimum standard for your credit score varies, depending on your loan type.
WHAT IN INCLUDED IN THE PREPAID COSTS AT CLOSING?
- HOMEOWNER INSURANCE – Generally speaking you’ll pay for two months in advance. After that, your mortgage payment will include the cost of your insurance and you won’t think twice about it!
- PROPERTY TAXES – 5 months of property taxes are paid for and held in your escrow account. Your taxes are automatically paid for through your Escrow account from here on out. NOTE: The amount held, often exceeds the amount you owe. However, if this is the case, a refund is provided to you at the end of the year. The opposite can occur and you’ll have to pay a few extra bucks to cover your taxes and/or homeowners insurance.
TITLE COMPANY FEES
The title company will “clear title,” making sure liens are on the property from the previous owner, are paid in full by the seller before the property transfers to you. Title and Escrow also complete the wiring of funds and record the sale with the county, making it official!
Here is more information on the closing routine and what happens leading up to the day of getting the keys to your new home!