Connecticut Homebuyers Closing Costs Explained

Whether financing with FHA or Conventional loan, Connecticut homebuyers closing costs could be a daunting number. It could run from as much as 4-6% of the purchase price. So if you are buying a $200,000-$300,000, you could expect to pay $8,000-$18,000 in closing costs on top of the down payment.

This is a huge amount of money and usually, first-time or repeat homebuyers don't have the funds to cover their closing costs. And even if they do have the money in their bank account or other liquid funds, just thinking of having to pay for a two-digit closing costs could be a huge turn off.

But there is a way around it. Before I explain how homebuyers can afford to close on a home even without enough funds for the closing costs, I would like to explain in details what comprised the closing costs.

Connecticut Homebuyers Closing Costs

Typical Closing Costs are categorized into Loan Costs and Other Costs on the Closing Disclosure.

LOAN COSTS

1.Origination Charges

• Application Fee - Nothing is free. Lender charges a fee to process the application. However, it could be waived if the lender decides so. It is negotiable.
• Origination Fee- This is the lender's administrative costs and could be calculated as a percentage of the loan amount.
• Processing Fee -A processing fee is simply to cover the cost of processing the documentation related to your mortgage application. The processing fee can be between $500 to $1500.
• Underwriting Fee - is the cost for underwriting the loan which determines if the lender will provide you a loan or not. It could be between $500-$800.

2. Services Borrower Did Not Shop

• Credit Report - You pay this amount when a tri-merge or 3-bureau (Equifax, Experian, Transunion) credit report is pulled to obtain your credit history and score. Your credit score determines your creditworthiness in the eyes of the lender. This could be between $20-$35.
• Flood Certification - Flood Certification is between $15-$25. The lenders would like to know if the property is on the flood zone or not. Flood Zones are geographic areas that FEMA has defined according to varying levels of flood risk. If the property is in a high-risk area, a flood insurance may be required by the lender.

3. Services Borrower Did Shop For

• Courier Fee or overnight fee - as the name denotes, is the cost of transporting loan documents to complete the loan transaction. With the proliferation of digital repository and transmission, courier is no longer utilized as much as it was ten years ago.
• Abstract or Title Search - This is the fee for doing a thorough search of the property's records to ensure that the title is clean and free of any encumbrances. That no one else has a claim on the property. This runs from $130-$160
• Lender's Title Insurance - This insurance is to protect the lender if there is a problem with the title although you are paying for it. The fee ranges from $500-$550.
• Settlement Fee - is the attorney's fee to cover the time spent in preparing closing documents, resolving any title issue, if there is any, and the actual time spent on consummating the real estate transaction. It could vary from $700-$1500.

OTHER COSTS

1. Recording Fees - The fees charged by the local town or county to record public land records such as mortgage and deed. Recording fee for the deed could be $65 and $200 for the mortgage.

2. Prepaids- Lenders don't trust any borrower. That is why they require payments of future expenses.

• Homeowner's Insurance Premium (12 months)- The first year of insurance is usually paid at the closing.
• Mortgage Insurance Premium (12 months). This is the lender's insurance against borrower's default. FHA borrower who is putting less than 5% down payment could be paying .85% for MI. 0.80% if down payment is more than 5%. FHA mortgage insurance is for the life of the loan. So even if the borrower attain 20% equity, he will still continue to pay MI. The only way to rid of MI on FHA loan is to refinance it to conventional. On conventional loan, for more than 80% loan amount, MI is more specific. The basis would be credit score, debt-to-income ratio, loan amount and size of the loan. It could vary from 0.3% to as high as .85%.
• Prepaid Interest- most lenders require prepaid interest calculated from the closing date and first full month prior to the first mortgage payment.
• Property Taxes - This is an adjustment based on the seller's used or unused portion of taxes they paid for the tax period. For instance, if your closing is April 30, and the seller paid the taxes up to the end of June for that year, you will owe the seller two months of his prepaid taxes.

3. Initial Escrow Payment at Closing- On top of the prepaid items, lender requires escrow of the following:

• Homeowner's Insurance- usually 1-2/12 of the annual hazard insurance
• Property Taxes - 5-6 months.

CONNECTICUT HOMEBUYERS CLOSING COSTS could be indeed overwhelming. The question is "Do First-Time Homebuyers or Homebuyers in general have to wait until they have saved up for closing costs?"

You don't have to wait until you save up 4-6% of the purchase price. Your Realtor who is well-versed in negotiating the closing costs with the sellers could explain how this could be incorporated into the purchase price.

However, make sure that you as the first-time or repeat homebuyers know that you still have to come up with your Earnest Money Deposit and the cost of Home Inspection which could run up to $650.

For a personal consultation, you can contact your local Realtor Maria Gilda Racelis of Home Buyers Realty. You can call her at 860-995-9473 or email at mariagracelis@gmail.com. Visit her website www.hbrsales.com.

This article is brought to you by Maria Gilda Racelis. Your First-Time Homebuyers Specialist! This is written for educational purposes only and may not encompass the costs charged by the lender to give the readers an overview of the closing costs. Actual closing costs is determined by the lender.