The Closing Costs

If you are a first time home buyer, you are probably wondering how much money you’ll need to have with you when you go to your closing. You also probably are wondering where all that money goes, and why you are paying it!

Down Payment

If you did not already pay your entire down payment amount to the mortgage lender prior to the closing date, you will be expected to pay the remainder of the down payment as indicated in the signed contract or the offer you made on the home. If you are not including a down payment, or have already paid the entire amount as agreed, you will not have any more down payment fees to pay during the closing.

Loan and Legal Fees

This category of closing costs can include a wide variety of fees and costs, but you can determine their actual amounts when you apply for the mortgage with the lender. They are required to disclose all of the fees associated with obtaining the mortgage.

Taxes, Utilities

The fees you may be required to pay under the closing category that includes Taxes and Utilities have nothing to do with the mortgage agreement between the buyer and the mortgage lender. If the seller of a property has filled the propane tanks right before the closing, in most cases, the buyer is expected to pay for what is in the tanks at the closing. If utilities are paid a month in advance, the buyer will be expected to pay for the portion of utilities paid for from the closing date onward. Check with your attorney to determine the amount you can expect to pay, if there are any back taxes owed on the property, and how much you will be paying for utilities at the closing.

Prepaid Items

For all items that are included in escrow payments, the mortgage borrower is required to pay in advance for a portion of these continuous expenses to the mortgage lender. The reason for this prepayment is so the lender can continue to make payments as required, and at your expense. For example, property taxes, hazard insurance, mortgage insurance and flood insurance are all part of the prepaid items that would be included in an escrow mortgage payment. Borrowers are usually required to pay about 6 months of property taxes at closing. Hazard insurance policies are paid for one year in advance, and sometimes up to 2 months of the following year- as is flood insurance if you need to have it. Mortgage insurance can be paid monthly does not require a full year's premium paid in advance at the closing. This alone will save you a few hundred dollars! These prepaid items are hard to predict prior to the closing, but if you work with your mortgage lender and attorney while still in the application process, you should be able to come up with a ball park figure that doesn’t leave you with your mouth hanging open in surprise over the amount you are required to pay during your closing.