Tuesday, July 5, 2011

What you need to know about closing costs

  Whether you are buying or refinancing, it is essential to know what your costs will be prior to applying for the loan.  Let's deal with purchase transactions first.  Buying a home can be very stressful and confusing and you can add 2 layers to that if you are buying property in New York.  You are worried about all sorts of things like down payments, movers, interest rates, etc.  For the most part, the closing costs that the lender charges are minor compared some of the other items like title insurance and real estate tax escrows.  Title insurance is a state mandated number based on the loan amount.  Then, you have your "ancillary" title fees like searches and recording fees that quickly add up.  Your title bill can easily run into thousands of dollars.

   If you want to pay your taxes with your mortgage payment (as most people do), realize that the bank is going to collect any taxes due within 60 days of closing PLUS collect anywhere from 2-6 months of taxes for the escrow account.  The bank wants an assurance that they can pay your taxes if you skip payments or pay late.  In some parts of the the country (especially the suburbs of NY) the tax burden is tremendous and the taxes collected at closing far surpass the closing costs that the bank charges.

  On a refinance transaction, your closing costs are very similar to that of a purchase.  Here are the major items to keep in mind when dealing with a refinance:

  1.  Unlike a purchase, you can include the closing costs in the new loan and not (in theory) have to come out of pocket to pay those costs.  Many people do that but they must realize that they are financing those costs over the life of the loan.

  2.  Even if your refinance with the same bank that owns your mortgage now, they will probably set up a new escrow account.  You will get back whatever is in your old account within 30 days of closing.

  3.  Even though you took out title insurance when you bought the home, you arr required to get a "re issue" of title insurance for the refinance.  The premium is about half of what it was when you purchased the home.

  Whether you are purchasing or refinancing, you have to know what your costs are.  I have heard of too many instances where the borrower gets to closing and they are shocked by the outlay of money that is needed because they weren't informed of the real costs.  Don't let that happen to you.

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