Closing cost

Most home buyers need home loans. All home loans come with a closing cost. I have seen closing cost from $1300 to $4700. Why is the difference so big?

Well, one loan officer's quote of closing cost item list is not same as another.

To some, closing cost means:

-- lender's application fee, underwriting fee, document preparation fee, appraisal fee, flood letter fee, credit report fee

To others, it also include:
-- inspection, 1 yr insurance on the home, lawyer fee, etc.

Yet to others, this include prepaids.
-- prepaids apply especially to borrower who have less than 20% downpayment, the lender require to escrow for property taxes and home hazadous insurance. It's usually paid 3-4 month ahead. On a #200,000 home, the tax escrow is about:

$200000 x 0.011 (Columbia MO property tax rate) / 12 x 3 == $550

Insurance escrow is about 1/2 of that.

Prepaids are items homeowners have to pay sooner or later, so it is really not a cost, just some money to be reserved for future payments.

In Missouri, closing cost is relatively low. Lawyers are not needed. Missouri also does not have 'transfer tax' -- like a sales tax for home sales. Some states charge up to 2%. For a $200,000 house, the transfer tax would be $4000.

The following link shows the transfer tax rate by states:

http://www.ncsl.org/default.aspx?tabid=12661

In Columbia MO, without escrow items, closing cost for a $200,000 house is only about $1500-2000.

In the tougher market, some sellers offer to pay some closing cost for the buyer as incentive. Or, the buyer could ask for it in the contract.

Recently Fannie Mae and Freddie Mac are giving closing cost credit as incentive to attract buyers for their properties.

Foreclosures can be good deals. In Columbia MO, the recent foreclosure rate is only 2-3%. Therefore finding that fits your specific need of size and location may be difficult to find.

Back to closing costs, here is a link to average closing cost:

http://www.bankrate.com/brm/news/mortgages/ccMissouri.asp

The fees listed in above link is actually more than what I have seen. Application, processing and underwriting is normal, but the origination is not. Ask your lender about each item. Don't assume you have to pay it. Negotiate. Or, at least compare between different lenders.

Points are not something all borrowers have to pay. Points are upfront money to be paid to lower the interest rate.

The current interest rate is historically low, therefore there is not a good reason to pay points to lower it in current market.

If you have any more questions, drop me a note, and I will try to answer them, or at least point you to the right direction.