What are Closing Costs Anyway? The “Why’s” and “What For’s” of Arizona Mortgage Closing Costs

Your first step in purchasing a home is to secure talented and professional teams of Mortgage Lenders, Real Estate Agents, Title Companies and Inspectors around you. All of the teams we choose will need to be paid for their services so budgeting for closing costs and being aware of the funds we will need in advance is just good financial sense and planning. In addition to lending fees, such as underwriting, processing, and originating fees there are several other fees that we all need to be aware of so that we can plan for them.

Let’s take a look at some of the more common expenses in a real estate transaction:

Home Inspections

A home inspection company is hired to evaluate many different systems within your home to ensure that they are functioning as they are intended to. They will point out flaws, code violations and anything that may be dangerous or unsuitable to a buyer. This is money well spent as it can point out future problems that can end up saving thousands of dollars.

Well and Septic Certifications

If the home you are purchasing has either of these systems, it is very important to make sure these systems are functioning properly. These can be expensive problems to fix and should be left for the professional to investigate.

Appraisal Fees

Appraisal fees may sometimes be required to be paid up front by the buyer, but this can depend on the state you live in, the type of property and size of the loan, the loan program and the lender you are using. In some cases, you may even have more than one appraisal fee if it happens to be required due to value dispute in underwriting. Be prepared and budget correctly.

Termite/Pest Inspections 

Termites and pests love the Arizona climate. Due to the desert habitat here in Arizona, it is one of the most termite prone regions of the United States. These inspections will be one of the best investments you will ever make when purchasing a home.

Condominium Questionnaire Fees

These fees can range up to $300 and take up to 30 days to receive. Again, plan ahead. A typical purchase may not involve all these services, but will involve some of them. Remember that these companies will expect to be paid regardless of the purchase being completed.

Frequently Asked Questions:

Q. What is an earnest money deposit and where does it go?

A. An Earnest Money Deposit is an amount held by a third party escrow company, generally the Title Company that you decide to use for your transaction. It is applied towards the buyer’s down payment or closing costs.

Q. Who pays the Real Estate Agent on a purchase transaction?

A. In most cases, it is the responsibility of the Seller to compensate the Real Estate agent. A homeowner agrees to compensate the agent when they hire them to market, list and sell their property and also agree to compensate the agent that represents the Buyer.

Q. What are “Points” and are they tax deductible?

A. Mortgage points are fees that are charged by your mortgage lender for the services they provide and/or to “buy” a lower interest rate. One mortgage point is equal to 1% of the mortgage amount. Have your mortgage lender help you understand points and how they work and they could end up saving you thousands of dollars on your mortgage. There is a simple formula you can use when you are deciding to buy or not to buy points: Cost of buy down divided by the monthly savings = the number of months to break even. Talk to your mortgage professional for guidance and advice here.

Q. If I want a lower rate, can I pay more than one point?

A. Points are usually calculated in 1/8 increments. A good rule of thumb to follow is that for every 1/4% drop in rate it will cost you one mortgage point on a 30 year fixed rate.

Q. Is a “No Cost Loan” or a “No Origination Loan” a form of buying up a rate?

A. Yes, if a borrower is planning on keeping a mortgage for a short period of time this strategy is often used.

The Eddie Mortgage Team is a professional and knowledgable team that can make sure that your fees are kept to a manageable level and can counsel you in the planning stages of purchasing a property and help you to be prepared and comfortable throughout the process. Let The Eddie Mortgage Team use their experience to make this life-changing event easy for you.