The whole purpose of taking out a mortgage is to borrow the bulk
of the purchase price of a house. Most houses sell for prices
that are well beyond the amounts the people keep in their bank
accounts, so taking out a loan to buy a home is pretty much
inevitable. And yet many homebuyers are astonished to discover
just how much cash they are required to bring with them when it
comes time to close on the loan.
It does seem rather
counterintuitive that one would have to bring cash to a loan
closing. After all, the purpose of the loan is to receive money,
isn't it? And yet, the costs associated with taking out a loan
must be paid and convention dictates that those costs be paid
when the loan is signed.
If you are not expecting it, a
call from a loan officer, saying, "Closing is tomorrow. Don't
forget to bring a cashier's check for $15,000" can be pretty
shocking. Here is a short list of things a buyer may be expected
to pay, in cash, when closing a loan:
payment - This is the portion of the price of the house not
covered by the loan. In years past, this figure might have been
20% of the purchase price or more. Now, in some cases, there may
be no down payment at all.
Loan origination fee - The
fee that the lender charges to create and process the loan. This
fee is typically about 1% of the loan
Appraisal fee - The fee charged to
assess whether or not the house is worth the seller's asking
price. This fee may run $300-500, depending on the
Property inspection fees - A charge of a
few hundred dollars to assess whether the home is structurally
sound. This may cover an inspection of plumbing, electrical or
sewage systems as well as a foundation or roof
Private mortgage insurance - Charged
on loans that cover 80% or more of the purchase price, this
insurance protects the lender from default by the
Miscellaneous fees - This covers copying
documents, postage, courier fees, notary fees and other
miscellaneous office expenses.
All of these fees can
add up to quite a lot of money. The well-informed buyer would do
well to ask, in advance, just how much money he or she will be
expected to provide at closing. As the sum can easily amount to
5% of the purchase price or more, most buyers will sufficient
notice to gather the funds in order to have them ready on time.
The last thing any buyer wants is to be unable to close because
he or she cannot provide the proper funds at closing. It is best
to be prepared.
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