You know you’re going to pay a mortgage for however many years once you sign the paper on a Santa Cruz home. You know your agent is going to get paid for the absolutely wonderful, fantabulous job he or she did to help you find the home of your dreams. What you may not be expecting, however, are the closing costs.
The saying goes “nothing’s guaranteed except death and taxes,” but you can add “closing costs” in there. Now, I’m sure the mortgage was expected, and you don’t mind your agent earning a bit, but what the heck is this “closing cost” business? While the government forms explain them, they might as well have been written in chicken scratches; government lingo has never been exactly easy to understand.
Be Prepared to Pay
“Closing costs” is a catch all term for all the expenses that wouldn’t fit under a convenient title like “mortgage.” Be prepared, because they can range anywhere from 3% to 8% of your total loan. For example, if you have a $150,000 loan, your closing costs could be anywhere from an additional $4,500 to $12,000.
What are you paying for?
Aren’t you already paying for the Santa Cruz home? What’s with these closing costs? It probably feels like hidden fees, but they aren’t. Here are just a few of the fees you might end up paying, depending on the lender and the circumstances:
• Prorations – The allocation of property taxes, interest, Home Owner Association dues, insurance premiums or rental income between buyer and seller proportionate to time of use. For example, if the property tax is paid up to a period after you close on the house, the seller might be entitled to reimbursement.
• Appraisal Fee - The fee charged for a written appraisal by a qualified person setting forth an opinion of a property's fair market value.
• Fire Insurance – Just in case you burn the house down after you buy it, lenders might require you to have a fire insurance policy.
• Purchase Points – These are known as “discount points,” or just "points", but it’s more like "pay the lender less now or pay the lender more later.” Each point costs 1% of your loan amount and reduces your interests rate for the life of your loan (usually by fractions of percentages). Since it can take a few years for the lower payment difference to offset the initial closing cost, paying for points is probably only a good idea if you plan to live in the house for five years or longer. With interest rates as low as they are now, it may not be a good use of your hard earned income.
The good news is you won’t have to guess what the closing costs are for your new Santa Cruz home. The lender is required to give you a list of the closing costs and the potential cost of each, so you won’t be completely surprised.
If you have questions closing costs or any other real estate related questions, I’m happy to help. Call me today at 831.662.6522 or email me at Lauren@LaurenSpencer.com or for additional information, visit my website at www.MySantaCruzRealEstate.com.