Buying Your Home - Escrow & Closing Costs
How can I save on closing costs?
Studies show that the closing
costs, which can average 2 to 3 percent of a total home purchase price, are
often more costly than many buyers expect. But there are some ways to save:
Negotiate with the seller to pay all or part of the closing costs. The lender
must agree to this as well as the seller.
* Get a no-point loan. The
trade-off is a higher interest rate on the loan and many of these loans have
prepayment penalties. But buyers who are short on cash and can qualify for a
higher interest rate may find a no-point loan will significantly cut their
* Get a no-fee loan. Usually, though, these fees are wrapped
into a higher interest rate though it will save you on the amount of cash you
* Shop around for the
best loan deal. Each direct lender and each mortgage brokerage has their own fee
structure. Call around before submitting your final loan
Who pays the closing costs?
Closing costs are typically paid by the Buyer. However, the Buyer can ask the seller to pay all or a portion of their closing cost. This usually happens when the buyer is cash poor. They have the down payment and can qualify for the loan, but are short on the funds to close because of the closing cost. You must keep in mind when asking the seller to pay the closing cost, they will usually add the amount they are paying for you to the purchase price. So, if you are making an offer on a property asking the seller to pay your closing cost, you don't want to make a very low offer and ask for closing cost. Unless the property is over priced. In essence you are financing them. For example: You offer $300K and ask the seller to pay $6,000 in closing cost. The offer to the seller is really $294,000. The good thing is, the property has to appraise, at the sales price amount with the closing cost added. The main thing for the buyer to understand is, if it appraises then the seller could have sold for that amount, without paying your closing cost. So you got a good deal, because the seller could have went with a buyer not asking for closing cost and got more in their pocket.
What are closing
Closing costs are the fees for services, taxes or special interest
charges that surround the purchase of a home. They include upfront loan points,
title insurance, escrow or closing day charges, document fees, prepaid interest
and property taxes. Unless, these charges are rolled into the loan, they must be
paid when the home is closed.
Where do I get information about closing
For more on closing costs, ask for the "Consumers Guide to
Mortgage Settlement Costs," Federal Reserve Bank of San Francisco, Public
Information Department, P.O. Box 7702, San Francisco, CA 94120 or call (415)
Why do I need a title report?
As much as you as a
buyer may want to believe that the home you have found is perfect, a clear title
report ensures there are no liens placed against the prior owners or any
documents that will restrict your use of the property. A preliminary title
report provides you with an opportunity to review any impediment that would
prevent clear title from passing to you. When reading a preliminary report, it
is important to check the extent of your ownership rights or interest. The most
common form of interest is "fee simple" or "fee," which is the highest type of
interest an owner can have in land. Liens, restrictions and interests of others
excluded from title coverage will be listed numerically as exceptions in the
report. You also may have to consider interests of any third parties, such as
easements granted by prior owners that limit use of the property. Some buyers
attempt to clear these unwanted items prior to purchase. A list of standard
exceptions and exclusions not covered by the title insurance policy may be
attached. This section includes items the buyer may want to investigate further,
such as any laws governing building and