Understanding
Closing Costs for Torrance Home Buyers
See also
Who Pays for
What During and Escrow
You can generally
break down all closing costs into two basic groups:
- Amounts
paid to state and local governments. These include city, county
and state transfer taxes, recordation fees, and prepaid property
taxes. Torrance currently does not have a city documentary transfer
tax but does have a Los Angeles County transfer tax of $1.10
per $1000 of purchase price. This cost is most often paid for
by the seller.
- Costs of
obtaining a loan or mortgage. These fees include title insurance,
appraisals, credit checks, loan origination and documentation
fees, commitment and processing fees, hazard and mortgage insurance
and interest prepayments.
There are
plenty of fees that you’ll have to pay during the closing.
Many of these costs are actually negotiated during the offer and
counter offer process. All closing costs are spelled out in the
lender’s Good Faith Estimate. If you want to make sure you
are paying the least amount possible in closing cost fees, you
should get at least three Good Faith Estimates from mortgage lenders.
This is only an estimate and the actual charges may differ. RESPA
allows the borrower to request to see the HUD-1 Settlement Statement
that shows all actual charges imposed on borrower in connection
with the settlement one day before the settlement. If you see
a charge that doesn’t make sense, or that no other lender
has, it’s time to ask questions.
Here’s
an example of what you can expect to pay (some costs vary widely
from state to state, so you should determine exactly what you
will have to pay) :
Property
Inspection - We strongly recommend that every home has a physical
inspection done during the escrow period. A qualified inspector
can find many potential problems early in the process which allows
you to request repairs, request a credit, obtain further specific
inspections, or even back out of the deal. Inspections generally
run between $275 and $450 depending on the size of the home.
Discount
and Origination Points:
Points are
equal to a percent of the loan amount. 1.00 point is equal to
1.00% of the loan amount. Discount points represent additional
money you can pay to the lender at closing. If you pay more points
it will lower the interest rate. Usually, for each point you pay
for a 30-year loan, your interest rate is reduced by about 1/8th
(or .125) of a percentage point. Paying points can be good if
you plan on living in the home for a long time.
Origination
Points (or Loan origination fee) charged by the lender for
evaluating, preparing, and submitting a proposed mortgage loan.
Origination fees are often expressed as a percentage. A one percent
loan origination fee is equal to 1% of the loan amount. Some lenders
add origination points into their quoted points while other lenders
add an origination point in addition to their quoted points.
Application
Fee covers the lender’s cost to process the information
on your loan. Usually, you must pay this charge at the time you
file the application. Some lenders may apply the cost of the application
fee to certain closing costs. Generally lenders do not refund
this application fee if you are not approved for the loan or if
you decide not to take it.
Appraisal
Fee: This fee ($150 to $400 depending on the price of the
home) pays for an independent appraisal of the home you want to
purchase. The lender requires this estimate of the market value
of the house for the loan. Factors to be considered in determining
market value are: present cash value; use; location; replacement
value of improvements; condition; income from property; net proceeds
if the property is sold, etc. The appraisal is a critical factor
in determining how much of a mortgage the bank or mortgage company
will approve. After the appraisal is completed, the borrower is
normally entitled to a copy of the appraisal from the lender.
Credit
report Fee: Three major national credit bureaus (Equifax,
TransUnion and Experian) supply lenders with the information on
your credit behavior. Consumers typically pay $45 to $55 for this
report.
Title search
and title insurance: A title search is a detailed examination
of the historical records concerning a property. These records
include deeds, court records, property and name indexes, and many
other documents. The purpose of the search is to make sure the
buyer is purchasing a house from the legal owner and there are
no liens, overdue special assessments, or other claims or outstanding
restrictive covenants filed in the record, which would adversely
affect the marketability or value of title.
A title search
can show a number of title defects among these are unpaid taxes,
unsatisfied mortgages and judgments against the seller. But there
are some hidden defects that even the most diligent title search
may never reveal. For instance, the previous owner could have
incorrectly stated his marital status, resulting in a possible
claim by his legal spouse. Other problems include things like
fraud, forgery, defective deeds, mental incompetence, confusion
due to similar or identical names, and clerical errors in the
records. These defects can arise after you have purchased your
home and jeopardize your right to ownership.
A certificate
of title -- issued by a title company that did the title search
-- offers no protection against any hidden defects in the title
which an examination of the records could not reveal. A title
insurance protects against any tax liens, unpaid mortgages, or
judgments missed in the research of the history of title on the
property. If a claim is made against your property, title insurance
will, in accordance with the terms of your policy, assure you
of a legal defense and pay all court costs and related fees. Also,
if the claim proves valid, you will be reimbursed for your actual
loss up to the face amount of the policy.
Basically
there are two different types of policies - a lender's policy
and an owner's policy. The lender's policy protects the lender's
interest in the property as security for the outstanding balance
under the buyer's mortgage. The owner's policy safeguards the
buyer's investment or equity in the property up to the face amount
of the policy. The cost of the policy is usually based on the
loan amount.
It is required
to obtain a lender's title insurance policy only. If you also
desire the protection of title insurance you should purchase a
buyer's title policy. This is a one time premium, and usually
the cheapest rate might be offered by the company that did the
title search. It is also advisable to inquire about the seller's
title insurance policies on the property, for it may be possible
for you to obtain a policy at a lower reissue rate.
Escrow Account:
Most lenders require you to pay for some items that will due after
closing. These prepaid items usually include insurance premiums
(for Homeowners Insurance -- also called Hazard, or Fire Insurance
-- and Private Mortgage Insurance) and Real Estate Taxes. The
HUD regulations limit the amount of money a lender may require
the borrower to hold in an escrow account.
Flood Certification:
Some homes require flood certification fees, amounting up to $30.
It verifies that the property is not in a flood zone. If the property
is located within a defined zone the lender will require a flood
insurance policy.
Recording
and Transfer Charges: A small fee (to $50 to $150) to cover the
cost of the paperwork required to record your home purchase.
Interim interest:
Accrued interest from closing date until the end of the month.
