What Are Closing Costs/Pre-Paid Fees?

Everyone always is talking about how you can buy a home with no money down, or with just 3.5% down. But in reality there are some additional fees and costs associated with closing on a house that most buyers are unaware of. These are known as closing costs and/or pre-paid fees.

So what are closing costs? Closing costs are the fees that are charged to the buyer to close the sale of the house. In North Carolina regardless of whether you finance a home or not some of the fees you will pay are for attorney to prepare the closing paperwork and do a title search to ensure you have a clean title that is going to be free from liens. Title insurance which protects you against someone down the road claiming that they have a stake to the property. Recording of the deed in your name at the county courthouse. These are just some of the feees associated with closing costs.

If you finance a portion or all of the house you are looking to purchase then you will incur what is known as pre-paids. Pre-paids are a fancy term for fees that the mortgage lender charges you upfront to process the loan and pay future bills on the house. Some of the fees are an appraisal fee, loan origination fee, credit report fee, homeowners insurance, property taxes, mortgage insurance, and flood certification. There are more. However ; these tend to be the most common.

Some of your pre-paids will be put in escrow for the mortgage company to pay in the future on your behalf . Like, homeowners insurance and property taxes. These the mortgage lender will ask you to pay a portion up front so that when the bill comes in they have enough money in your account for them to pay the bill on your behalf.

So, gnerally how much is are these fees? They range depending on the price of the house and the lender. Generally the rule of thumb for the mortgage company I use is 3% to 4% of the sale price. others are as high as 6%.

The key here is to know what these fees are going to be before you negotiate and ask the seller for that amount of money toward your closing costs... if you do not ask for it upfront it will be an additional amount of money you will need to come up with at the closing.

I always talk to the mortgage lender before I submit an offer on behalf of a buyer. I tell them this is the house we are considering putting an offer in on and what are your expected closing costs...Then I know what to ask for from the seller upfront to help defray the cost to the buyer.

Dave diCecco
Realtor/Broker
www.davedicecco.com