So you have selected a house, and now you are getting down to the nitty-gritty on what it will really cost you to get into it. Your lender is required by law to give you a “Good Faith Estimate” of your closing cost expenses along with a booklet from RESPA, outlining “closing” or “settlement” fees. When you leave the lender's office you should have both of these in hand.
On the Good Faith Estimate you will see a breakdown of all of your expenses – what the house will cost you monthly along with any “escrowed” expenses, such as your taxes and insurance. If you have less than 20% down on your house you will be required to pay your taxes and homeowner's insurance in your monthly payment. This protects you from getting stung when those bills come due, because you are paying 1/12th of the due amount every month in your payment.
However, if you have 20% down, by all means pay your own property taxes and insurance when they come due. That way YOU will earn the interest on your money during the time you are waiting to pay your taxes and insurance
As far as your down payment (which right now is substantive because of the lending fiasco going on nationwide), you will almost assuredly need at least 3.50% down if you are going on an FHA loan. If you are using a conventional loan, be prepared for at least a 5% down or more, from 10% to 20%. There is virtually no such thing as “zero -down” anymore.
Third Party Fees
You will also be paying third party fees – fees charged to you for functions performed on your behalf during the process, including the following:
- An appraisal to ensure you aren't paying too much for your house.
- A title search to make sure old debts against the property get paid prior to closing so they do not become “clouds on the title”.
- A mortgage credit report.
- Other small fees for couriers, express mail, etc.
Of course, there are always more fees that seem to materialize from thin air. These can include processing and underwriting, commitment fees, settlement fees, escrow agent fees, or any number of a combination of these. The lender is required to include these but you should always ask if you do not understand what they are.