Buyers closing costs, prepaids, and escrow, Oh my!
Have you ever visited with a lender and wondered what language they are talking? Well it’s the lender lingo and in most cases, buyers walk away confused and not really sure what all of these fees cover. When a mortgage is secured on a property the lender either keeps the loan “in house” or sells it on the “secondary market”, which is why the interest rates are lower for locking in the interest rate on a loan term loan.
The Closing Costs are paid to originate and process the loan allowing the lenders underwriter to verify all of the information you provide is true and accurate and the property they are taking as security for the mortgage on your new home is appraised at a value that supports loaning you the money to purchase the property. The lender is required to give you an estimate up front that is fairly accurate and a final accounting within 10 days prior to closing, and the final closing numbers verified no later than 72 hours prior to closing.
The Prepaids refer to fees the lender will collect from you up front when processing your loan file these fees include the appraisal fee and credit report. In the event you would not close on the property the bank does not refund these fees as they are paid directly to the party providing the reports.
Escrow is the agreement for one party to hold money that one party owes another, usually a trust or escrow account. In our area this term can be referred to the time period when you have put earnest money down on a property, have an accepted purchase agreement and waiting to close the sale. The most common use of the word escrow is when the lender escrows property taxes and insurance. The lender will take the annual amount of the real estate property taxes and the home insurance divide the amount by twelve months and require three months to be deposited into the escrow account upon closing to start the process, along with requiring the first years property insurance be paid all up front at closing.
The total of the CLOSING COSTS, PREPAIDS, and ESCROWS will be added to your down payment needed to total the amount of cash you will need to close on the property. In some events you may receive assistance from the seller as a credit towards your closing costs.
Buyers: You will be given a "Loan Estimate" (LE) of closing costs within three days of submitting your loan application. The estimate is based on the loan processing expense the lender based on typical expenses they have experienced.
When purchasing a property buyer’s can be overwhelmed with decision making and new terminology to learn, as your realtor we are here to walk you through the process and answer all your questions. We feel it’s very important to have clear conversations and want you to have a general understanding of the process. We welcome conversations with you as this also helps us increase awareness of how-to server our clients in the best way we can.
We want to be your Realtors.
BECAUSE EVERY MOVE MATTERS!
Roxanne Johnson, Broker, ABR, CRS, GRI
Kelsey Bergey, GRI, Realtor