Home Buying: Understanding Closing Costs

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Questions and Answers

What is the main purpose of closing costs in a real estate transaction?

To pay for ongoing property maintenance

To cover the seller's tax liabilities

To facilitate the transfer of property ownership (correct)

To compensate the buyer for the property price

Which fee is specifically paid to confirm the fair market value of the home?

Appraisal fee (correct)

Application fee

Closing fee

Courier fee

Which of the following fees can be negotiated depending on the lender?

Closing fee

Credit report fee

Attorney fee

Application fee (correct)

In which scenario might you need to pay for flood insurance at closing?

If the property is located within a flood zone Signup and view all the answers

What does the escrow deposit for property taxes and mortgage insurance typically require?

Two months of payments Signup and view all the answers

Which of the following is NOT a common closing cost?

Homeowners association fee Signup and view all the answers

FHA loan borrowers must pay upfront mortgage insurance premium (UPMIP) of what percentage of the base loan amount?

1.75% Signup and view all the answers

What is the role of the title company or escrow company during closing?

To oversee the transaction as an independent party Signup and view all the answers

What is the purpose of a home inspection?

To verify the condition of the property and check for necessary repairs Signup and view all the answers

Who is responsible for paying the Home Owners Association transfer fees?

The Seller Signup and view all the answers

What does Private Mortgage Insurance (PMI) protect the lender from?

Defaulting on a down payment less than 20% Signup and view all the answers

What is the typical range of closing costs for home buyers?

2% to 5% of the purchase price Signup and view all the answers

What are loan discount points considered?

Prepaid interest that reduces monthly payments Signup and view all the answers

What does homeowner's insurance typically cover?

Possible damages to your home Signup and view all the answers

What does the title company title search or exam fee cover?

Research on property titles to ensure no claims exist Signup and view all the answers

What is the role of the origination fee?

To cover the lender’s administrative costs Signup and view all the answers

In general, how can a buyer avoid closing costs?

By getting a no-closing cost mortgage Signup and view all the answers

What is commonly included in the documents reviewed from the Home Owners Association?

Association by-laws, rules and regulations Signup and view all the answers

Why might a buyer receive a revised Loan Estimate?

If there are changes in the fees listed Signup and view all the answers

What is the purpose of the VA funding fee?

To fund the VA home loan program Signup and view all the answers

What do recording fees cover?

Fees for filing public land records Signup and view all the answers

What may happen if there are discrepancies between the Loan Estimate and the Closing Disclosure?

The buyer can still walk away at closing Signup and view all the answers

Study Notes

Closing Costs

Closing costs are fees associated with a home purchase paid at the transfer of the title of the property from seller to buyer, also called closing.
Closing costs can be incurred by either the buyer or the seller.
Closing costs vary based on location, property, and loan type.
Some closing costs are negotiable, while others are required by law.
The Loan Estimate, provided within three business days of receiving a completed loan application, includes an estimate of closing costs.
The Closing Disclosure, given at least three days before closing, outlines the final closing costs.

Common Closing Costs

Application Fee: Covers the cost of processing a loan application, may include a credit check or appraisal.
Appraisal: Confirms the fair market value of the home.
Attorney Fee: Pays for an attorney to review closing documents (not required in all states).
Closing Fee or Escrow Fee: Paid to the title company or escrow company for overseeing the closing.
Courier Fee: Covers the cost of transporting documents for the loan transaction.
Credit Report: (Tri-merge) Determines your credit score, which is a factor in your loan interest rate.
Escrow Deposit for Property Taxes & Mortgage Insurance: Often requires two months of payments at closing.
FHA Up-Front Mortgage Insurance Premium (UPMIP): 1.75% of the base loan amount for FHA loans.
Flood Determination or Life of Loan Coverage: Determines if the property is in a flood zone, which requires flood insurance.
Home Inspection: Verifies the condition of the property.
Home Owners Association Transfer Fees: Paid by the seller to transfer ownership of the HOA, including dues, financial statements, minutes, bylaws, rules and regulations.
Homeowners’ Insurance: Covers potential damages to the home, often paid for the first year at closing.
Lender’s Policy Title Insurance: Protects the lender against title issues.
Lead-Based Paint Inspection: Evaluates the risk of lead-based paint.
Loan Discount Points: Prepaid interest that lowers monthly payments.
Owner’s Policy Title Insurance: Protects the buyer against title issues, generally optional.
Origination Fee: Covers administrative costs for the lender.
Pest Inspection: Inspects for termites or dry rot, required in some states and for government loans.
Prepaid Interest: Interest that accrues between closing and the first mortgage payment.
Private Mortgage Insurance (PMI): Required if the down payment is less than 20% of the purchase price.
Property Tax: Often paid at closing.
Recording Fees: Paid to the local recording office for recording the transfer of ownership.
Survey Fee: Verifies property lines and boundaries.
Title Company Title Search or Exam Fee: Researches the property’s deed to ensure no other claims.
Transfer Taxes: Paid when the title passes to the buyer from the seller.
Underwriting Fee: Covers the cost of the lender researching the loan application.
VA Funding Fee: May be required for VA loans, a percentage of the loan amount to fund the program.

Avoiding Closing Costs

A no-closing cost mortgage may eliminate upfront fees, but often results in a higher interest rate or rolled-in closing costs, increasing long-term cost.
Negotiation with the seller: The seller may agree to cover some or all of the buyer’s closing costs.

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Description

This quiz explores the various closing costs associated with purchasing a home. Learn about the fees involved, who is responsible for them, and how they can vary based on various factors. Understanding these costs is crucial for both buyers and sellers in the real estate process.