Closing Costs Explained

Closing your home should be exciting, and once you understand the process and how it works, it can be.

Here you will find a list of costs commonly associated with closing on a home. Fees may vary depending on where you live, so be sure to talk to your lender, real estate agent, and settlement company for more specific information.

All closing costs must be listed on your Hud-1 settlement form, a document that is required to be filled out prior to finalizing the purchase of your home.

What are My Closing Costs?

In addition to the sales price of the home, there are a variety of costs associated with finalizing the transaction.

• Loan Fees-Direct Loan Costs: Most people need to obtain a mortgage loan to pay for their home. There are often fees associated with obtaining a loan such as: Loan Origination Fee - This fee covers the lender’s cost of obtaining financing and administration for your loan.  Loan Discount (sometimes referred to as points) - This is the onetime fee charged by the lender in order to give you a lower interest rate.  Appraisal Fees - Cost to obtain an estimate of what your home is really worth.  Credit Report Fee - Cost to run a credit report.  Lender Inspection Fees - Inspection the lender may require.  Mortgage Insurance Application Fee - Some lenders will waive this fee.  Assumption Fee - If you are taking over the existing mortgage.  Mortgage Broker Fee - Covers the cost of the services of a mortgage broker, if engaged by the borrower.  Mortgage brokers typically present the borrower’s application to a variety of funding sources before helping the borrower make their final selection.
• Real Estate Broker Commission/Fees.
• Items Required by the Lender to be paid in advance - Also called “Prepaids”, such as: Interest - for the month of the closing.  Mortgage Insurance Premium - If the loan is being federally insured or guaranteed.  Hazard Insurance Premium - Home Owners Insurance policy.  Flood Insurance - Depending on the location of your home, this may be required.
• Escrows/Impounds/Reserves - Property Taxes and Insurance due over the next year.
• Title and Closing Charges - These fees cover the administrative costs of a title search, title examination, issuance of the title commitment/binder and final title insurance policy(ies.)
• Recording/Government Filing Fees - Buying a home is not only a big investment, it is also a matter of public record. The property information and the loan information are required to be filed at the county courthouse or other local government recording office.
• Other, Miscellanious Charges - Such as survey fees or inspection fees

This information provided by Corporate Title, www.corporatetitle.com

Tame Inflation Data Turns Rates Lower

Mortgage rates ended the week close to where they began the week, but the end result masked a lot of movement. The week began poorly for mortgage markets. Stronger than expected Retail Sales data and tough talk on inflation from Fed officials pushed mortgage rates higher on Monday and Tuesday. In particular, Tuesday’s Fed speakers suggested that the economy was beginning to recover - even if there is still a long way to go - and that inflation concerns have increased. The tide turned on Wednesday, however, when CPI, the most closely watched inflation report of the month, showed a lower than expected increase in inflation. Mortgage rates fell every day through the remainder of the week.

The April Core Consumer Price Index (CPI) rose at a 2.3% annual rate, below the consensus forecast of 2.4%. So far, higher food and energy prices have not been passed through in a large way to the prices of other goods. The Fed has been emphasizing inflation fears for a couple of weeks, which has had a negative impact on mortgage markets, so the good news on inflation was a relief to many investors. The Fed is generally considered to be comfortable with Core CPI readings below 2.5%.

In the housing sector, this week’s news was mixed. Against a consensus forecast of 940K, April Housing Starts rose 8% to an annual rate of 1,032K units. Building Permits, a leading indicator of housing market activity, rose 5%, the first increase in in five months. The construction of single family homes remained weak, however. The strength in the Housing Starts report came from new apartment construction, which is extremely volatile on a monthly basis. Separately, the National Association of Realtors (NAR) reported that median home prices fell 8% during the first quarter from the same period one year ago. The chief economist of the NAR suggested that the data may be a little misleading, since a smaller percentage of high end homes were sold during the period due to the difficulty in obtaining jumbo mortgages. In addition, the results varied in different parts of the country. 100 out of 149 metropolitan areas saw price declines during the first quarter.

Compliments of Corey Phelps, Front Street Mortgage, (231) 360-7283, email: corey@frontstreetmtg.com

 

Oil Shoots Higher

With little economic data on the schedule, the major economic story during the week was the continued rise in oil prices, which hit a new record high of $126 per barrel. Oil prices have nearly doubled since last summer. A major Wall Street investment bank issued a forecast this week that predicted a spike in oil prices to between $150 and $200 per barrel, possibly before the end of the year. The impact of rising oil prices on mortgage markets could be either positive or negative, depending on a couple of factors. Rising oil prices leads to higher prices for goods and services, and higher inflation usually leads to higher mortgage rates. On the other hand, higher energy costs slow economic activity, which serves to reduce inflationary pressures. In general, stock investors don’t like to see higher oil prices, while mortgage investors are less concerned. Mortgage rates fell a little during the week.

In the housing sector, the March Pending Home Sales index fell slightly from February, matching expectations. Pending Home Sales are a leading indicator of future housing market activity, so the next Existing and New Home Sales reports may show small declines. The National Association of Realtors (NAR) latest forecast predicted that conditions will remain soft for the first half of 2008, but that activity will pick up during the second half of the year.

Other significant news for the housing sector came out during the week as well. Fannie Mae announced that it will buy the new Jumbo Conforming mortgages for the same prices as those below the old conforming loan limit, which should make some larger mortgages more affordable. In addition, a $300 billion FHA housing loan guarantee program passed a vote in the House. More hurdles remain, as the program must be approved by the Senate and the President. If passed, this program will assist troubled borrowers in refinancing into a mortgage with more affordable terms, resulting in a reduction in the number of foreclosures.

Compliments of Corey Phelps, Front Street Mortgage, email: corey@frontstreetmtg.com, (231) 360-7283

Do Vacation Homes Qualify for 1031?

It has long been debatable as to whether a vacation home qualifies for 1031 tax-deferral treatment. It is clear that unimproved vacant land held for investment qualifies and that rental property used fewer than 14 days (or less than 15% of the time it is rented out) by the owner qualifies. The property may even be used by the owner for maintenance purposes without it becoming a personal residence. However, what if a vacation home is never rented out, held and used by the owner only and remains vacant when the owner is not there—is it investment property for purposes of a 1031 exchange? The definition of qualified property is unproductive real estate held by one other than a dealer for future use or future realization of the increment in value, is held for investment and not primarily for sale. Although it may still be considered more aggressive, in a 1981 Private Letter Ruling (PLR 8103117), the IRS allowed 1031 treatment of a vacation home where a taxpayer intended to acquire the property for personal enjoyment and an investment. The IRS had stated that the house and lot that had been acquired was “to be held for the same purposes as the properties exchanged therefore: to provide for personal enjoyment of the community and to make a sound real estate investment.” This seems to support the argument that personal enjoyment of the property may not prevent it from qualifying for 1031 tax-deferral treatment. As always, check with your tax advisor as to whether your property will qualify for 1031 treatment.

 This information provided by Corporate Title Agency - www.corporatetitle.com