Closing Costs Explained
What exactly are closing costs? This is a typical question that comes up when people are buying and selling St. Louis properties.
Closing costs are the fees that are related to the transfer of ownership or refinancing of a St. Louis property. Closing costs can be paid by the St. Louis seller or buyer at the time of closing. There is no set cost, and the cost varies from property to property.
The Closing Disclosure Statement
Despite the law requiring lenders to provide a loan estimate in three days or less from the date they received your application, the fees are subject to change. Once the closing date on the loan approaches, your lender will provide the closing disclosure statement.
The closing disclosure statement is a more reliable estimate. Feel free to look back at the original loan estimate to compare the two. If you have any questions about changes, be sure to speak to your lender.
The Fees
The actual fees included in closing costs can include – but not be limited to – the cost of checking your credit report, appraisal fee, attorney fees, loan origination fees, survey fee, underwriting fee, title insurance and more. Closing cost fees can be as low as 2% of a home’s selling price and up to 5%.
For this reason, it’s always wise to get estimates from more than one lender to compare. It’s perfectly acceptable to ask for a loan estimate from each one.
Because fees can vary, you may be tempted to try to negotiate closing costs. Some fees might have wiggle room but third party fees are not open to negotiation.
The Escrow Costs
Banks will often want to escrow six months of homeowners’ insurance and six months of real estate taxes. If you add this to other closing costs, this number can get quite large. Finding a bank that doesn’t escrow those amounts as well will keep your closing costs lower.
If you decide not to escrow taxes and insurance, remember that you will be responsible for paying those amounts when they are due. In some areas, you can ask the seller to pay some or all of the closing costs for you.
Working with Credits
Another option for not paying closing costs at closing would be rolling them into the loan. Typically lenders will let a certain percent of the purchase price go towards closing costs. An easy way to do it is to ask for a credit from the seller.
When the St. Louis seller provides a credit it means the closing costs will be deducted from the seller’s net amount at closing. To get the seller to agree to this idea, sometimes offering more than the list price for the property is a good idea. That way the seller can pay the additional amount at closing but still walk away with the same net profits on the property. If you go this route you will be financing closing costs over the length of your loan.
Throughout the buying process be sure to check in with your agent to make sure they have all of the documents and information to ensure the sale goes as smoothly as possible. Keep all paperwork handy so you can reference it on the day of closing.
Make sure to take your time at closing and read through all of the documents so you thoroughly understand everything you are agreeing to. If something looks different than you expected or is incomplete, do not signed until the issue is resolved and you feel comfortable.
A wire transfer will be used by the lender to send money to the closing agent. Because of this you may need to set up an escrow account with them for taxes and insurance along with your monthly mortgage payment. Bring your checkbook to cover any additional escrow or closing costs.