Can someone explain "closing costs" in the event of a home mortgage? Are they necessary?

[KittyWampus]

Can they be reduced to a "No Frills" type thing like a No-Frills divorce?

Thanks.

[rurallib]

1. I had always heard 'closing costs' and 'points' were fees that banks

and mortgage companies added on to make money because interest wasn't enough.

[MineralMan]

4. Also, the loan officer who handles your

mortgage at your local bank is probably not an employee of the bank...just a private contractor, who gets paid as a separate cost. Then, there's the title insurance fee, paid to the title insurance company. You may also have other things, like pro-rated property taxes to pay. Points are just another way of collecting additional money by the bank.

If you do a home sale with no mortgage involved, as my wife and I have done a couple of times, the entire process can be handled by the title insurance company. The closing fee will reflect the title insurance company's fee, plus some paperwork fees. The savings are substantial, especially if no real estate agent is involved. It's amazingly simple, and fast. A mortgage-free home sale can be closed in as little as a week, provided that the title insurance company does its job efficiently.

Typically, the seller and buyer split the costs, in that case.

[Donnachaidh]

7. and so many of the public can just walk in, plop down the full price, and SAVE MONEY!

:eyes:

[MineralMan]

10. No, not many can. I was simply explaining where the costs

come from.

In my case, I owned and lived in my house for over 30 years, and it was paid for when we sold it. Then, we came to Minnesota and bought a house from an elderly couple who were moving into assisted living. Their house was paid for, too. It happens.

It was very unusual, I understand. My point was that most of the closing costs have to do with the mortages involved, not the actual sale.

That you choose to make a sarcastic post has nothing to do with my situation. Not everyone is a new home-buyer. I'm 63 years old.

[msongs]

2. they are gouges people are forced to pay in order to get financing. think about interest and how muc

banks make....the interest over a loan life is as much or more than the principal, or %100 return. seems like that oughta be enough for loaning money on a property they actually own.

Msongs

[jmg257]

3. "Closing costs" cover all the things necessary for securing the loan & buying the house...

"Fees on a mortgage cover almost every cost associated with getting a loan. You've already encountered fees upfront for a credit report and a property appraisal.

But there are many more fees that you will be expected to pay at closing or settlement, which is generally 30 to 60 days after finalizing the sales contract. These closing costs are outlined in the "good faith estimate." The Real Estate Settlement Procedures Act requires every bank or mortgage company to give the buyer the estimate within three days of applying for the loan. It will list expenses related to inspections, taxes, title insurance and a host of other charges. You also should receive an information booklet, "Settlement Costs -- a HUD Guide."

Tip
The best approach is to get a copy of the good faith estimate before you make a commitment to any lender.

Typical Closing Costs
Here is a list of typical closing costs. In general, closing costs amount to 3 percent to 6 percent of the sale price. Note items with an asterisk (*) are explained below. For an estimated price range, see the separate Standard Closing Costs.

Loan application fees and credit report
Title search and insurance fees*
Lender's attorney fees (the bank)
Property appraisal
Inspections
Survey
Recording fees
Transfer taxes
Buyer's attorney (yours)
Documentary stamps on new note
Points and origination fees
Condominium application fee
Escrow account balances/prepaids*"

http://loan.yahoo.com/m/securing9.html


Also, things like heating oil in the tank, pre-paid utilities & current pre-paid taxes are usually included.


Not really ways to reduce them, most you just can't get rid of. More likely to get the seller to cover them, maybe via cost adjustment (lower price), or through the mortgage itself (higher loan).

[Donnachaidh]

8. title searches are absolutely necessary, even if you aren't getting a mortgage

If the house hasn't got clear title, and you don't KNOW that when you buy a house, you're basically stuck with the problem.

[KittyWampus]

9. that must be what a "title insurance company" does? Buying a house sounds immensely complicated

[MineralMan]

11. It certainly can be complicated.

That's why so many people are involved in the process in most cases. They all have to be paid for their work. The only simple home sales occur when the home is unencumbered with a mortgage and the seller can pay for it without taking a loan. In those cases, and they're rare, closing costs are minimal, generally around $500-$1000.

[MineralMan]

15. On another note:

Realtors are paid to manage the transaction. In many cases their fee is far too high for the amount of work they do, though. 6% is too much in most cases, and you should try to negotiate that fee when you decide to list your home.

[customerserviceguy]

14. Well stated

There are indeed some closing costs that are "junk fees", multiple charges for doing the same thing, such as a document drawing fee, and an escrow company fee on the same closing statement.

Yes, you can often talk a seller into paying $X toward your closing costs, but if we're talking about a refinance, there is no seller. That's why it's important to get an estimate of fees up front, and keep it handy when you go to sign the final paperwork. If you stand your ground on a previously undisclosed fee, chances are the lender will eat it, as nobody gets paid squat if you don't sign the final paperwork.

Be careful about this, though, if you have refused unreasonably, they have the right to keep your application fees. If you reach an impasse, ask for a day's delay, and you can have the questionable fee reviewed either by an attorney or a person knowledgeable in local real estate practices.

[mmonk]

5. They aren't frills.

They are prorated costs (taxes, insurance), attorney's fee, excise stamps,etc.

[Lex]

6. Survey, title search, recordation of documents, deed preparation

are all closing costs. That's not even getting to the fees that the lender charges for underwriting, etc.

[KillCapitalism]

12. I just went through this process.

Yes, like most above said, they're necessary evils. At least mine were only $2,500 which is not bad compared to what I hear a lot of people have to pay.

[asjr]

13. I think closing costs mean at the

stroke of a pen some people can make money from a home buyer.

[On the Road]

16. Closing Costs are Generally Legitimate Items

However, the prices you get charged usually include a very hefty profit margin.

[hedgehog]

17. DAve Barry had a hilarious but true column about closing on a house

that included a description of random people wandering in from off the street to be handed checks.

[davsand]

18. Some of those fees protect you as a buyer. Do you REALLY want to eliminate them?

Can't vouch for other states, but in Illinois you have to have a termite inspection done. I sure as hell WANT to know I'm not buying a termite ranch.

Similarly, it is at your discretion as a buyer to hire an attorney to represent you. I can't dictate for anyone else, but if I'm buying or selling a house my FIRST call is to a lawyer because a decent lawyer can save you a huge amount of problems down the road. I know some Realtors will try and tell you that a lawyer is not needed, but the bottom line is they work for the commission from that sale. Their interest in protecting you as a buyer is pretty limited. (Plus, I have to admit, I think just about every realtor I know locally is a scum sucking bottom feeder with a few notable exceptions.)

A reputable home inspection is done by a person who knows home construction and all the ins and outs of it. I do not like any nasty little surprises that will cost me a lot of money, so IMO, a home inspection is money well spent. You WANT to know what is lurking just under that roof, and you REALLY want to know for sure that the foundation is as sound as you think it is.

The appraisal fee is there to protect you--so you have some surety that you are not getting sold a grossly overpriced house. Again, I'm gonna sound like I'm harping against realtors here, but a lot of those guys have ZERO freaking clue what a house is actually worth. Literally, I have seen realtors put a price on a property based on what somebody ELSE sold a house for. I have also seen them list a house at whatever the owner says THEY think it is worth. Neither approach to value is an accurate one, and no respectable bank is gonna accept a mortgage without making sure that house is worth what your realtor has talked you into paying.

YMMV.


Laura