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Understanding Settlement Costs:
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Closing Costs vs. Settlement Costs
Closing costs are a combination of costs required to process
and close your mortgage loan. They will be itemized on the Good
Faith Estimate and the Final HUD-1 form for your review. Remember
to take the Good Faith Estimate with you to closing to compare
to the Final HUD-1 statement. Your closing costs will consist
of but are not limited to:
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Loan origination |
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Credit report |
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Appraisal |
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Discount points |
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Settlement Fee |
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Title insurance |
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Title endorsements |
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Recording fees |
Prepaid or Reoccurring Expenses
Prepaid expenses are those expenses that are paid in advance
of becoming due and will become due year after year. They are
collected at the closing to establish your escrow account for
those items that need to be paid on a regular basis in your behalf.
These costs are listed below:
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First year's fire or homeowners insurance |
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2-3 months of fire insurance for escrow |
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Property tax reserve (usually 2-3 months) |
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First year's flood insurance (if required) |
Who Can Pay Closing Costs?
Both buyers and sellers have their own closing costs. It is customary
that each party pay their fees associated with the settlement
statement. It is becoming more and more acceptable for the seller
to participate in the buyers closing costs as a sales concession,
providing the local real estate market will allow. You may be
in a very active real estate market and the seller may not have
to pay any concessions in order to sell his home.
The following can pay for the buyers closing costs:
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Seller, as long as it does not exceed 6% of
the sales price |
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Buyer from acceptable and seasoned funds |
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Lender |
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Gift from family or 501 (C) 3 nonprofit |
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