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What Are Closing Costs?

Buying a home can be a thrilling experience, but it can also be an expensive one. As Salt Lake City Real Estate Agents, it’s our job to help you prepare to purchase your dream home or to refinance your current mortgage. Therefore, it’s important to note that there are costs that come with finalizing the transaction, called closing costs. These fees can vary and add up to 2 to 5 percent of your mortgage loan. Whether you’re a first-time homebuyer or an experienced one, it’s essential to understand the different types of costs you may encounter. In this blog post, we’ll discuss the most common real estate closing costs, including what they are and how they can affect your budget.

Property-Related Fees:

Property-related fees are fees that are associated with the property itself. These fees help ensure that the home you purchase has no liens or issues that could cause legal trouble for you later on. Some common property-related fees include:

Appraisal Fee: The Appraisal fee is the cost of having a professional appraiser evaluate the value of the property you intend to buy. The appraisal must be done to ensure that the property is worth the amount you plan to pay for it.

Home Inspection Fee: A home inspection is a visual examination of the home conducted by a licensed professional. A home inspection is a crucial step in the buying process that detects hidden problems such as structural issues or mold.

Title Search and Title Insurance: These fees are designed to protect you as the homebuyer. Title search confirms that the property you buy is free of any liens, judgments, or bankruptcy filings. Title Insurance also protects you if any title-related issues arise after purchasing the home.

Property Taxes: Property taxes are prorated and included in closing costs. You pay a share of the current year of property taxes, roughly from the time of your closing to the end of the year, and this money goes into an escrow account.

Mortgage-Related Fees:

Mortgage-related fees include costs associated with obtaining the home loan. These fees are also explained in your Loan Estimate, which outlines the interest rate, monthly payment, and actual closing costs, including mortgage-related fees. Some standard mortgage-related fees include:

Credit Report Fee: The credit report fee is charged by the mortgage lender to obtain a copy of your credit report.

Origination Fee: The origination fee is the charge of originating the loan at the moment when the mortgage lender and borrower enter into a loan agreement. The origination fee can vary among lenders but is usually about 1% of the loan.

Application Fee: The application fee is the cost of processing your mortgage application.

Underwriting Fee: The lender charges the underwriting fee to evaluate and process your mortgage application.

Points: A point is a fee the borrower pays to receive a lower interest rate, and it is usually 1% of the loan. Lenders may let you buy points to lower your payment and make a payment toward the principal balance.

In conclusion, as you prepare to purchase a home or to refinance a mortgage, it’s essential to understand the costs you may encounter in the closing process. That way, you can budget accordingly and avoid any unwelcome surprises. Property-related fees and Mortgage-related fees can vary from lender to lender, but it’s essential that you ask these questions early on in the process. By knowing what you’ll owe in closing costs, you can prepare for your purchase and ensure that your dream of homeownership stays within reach. The costs may seem daunting, but they can be managed and are an important aspect of your home purchasing journey.