Closing Costs Required to be Paid in Advance
There are so many different lists of closing costs that it should make a borrower’s head spin. There are the non-recurring closing costs, the different closing costs, the closing costs to be paid in advance, the closing costs and reserves deposited with the lender, the closing costs related to the lender, the closing costs related to refinancing a home, and the closing costs the seller is asked to pay. There must be more but I can’t think of them right now. How on earth is a borrower supposed to figure out if they have enough money to pay for all the closing costs? The funds to pay for the closing costs have to come from the borrower in cash. The payment for the closing costs must not be borrowed money. This is hard to calculate since the purchaser of the home or property is supposed to pay at least twenty percent of some unknown price plus all the closing costs which no one has any idea of how much the total will be in the end and these closing costs that are required to be paid in advance. How is a potential homebuyer supposed to know when they have enough money saved up?
Following are some of the closing costs that the lender requires the borrower to pay in advance.
• Pre-paid Interest – This is interest paid to get the interest paid up to the first of the month if your closing falls on any other day of the month. For example, if you closed on the twenty-fifth of a month, you will have to pay five to six days of pre-paid interest.
• Homeowner’s Insurance – When you purchase a home you have to pay for the first year of homeowner’s insurance upon closing of your loan. This insurance will cover damages to your home and its contents.
• VA Funding Fee – This is the charge that the VA charges the borrower for them guaranteeing the loan. This fee is based on whether or not this is the first time or second time you have used your VA benefits in regards to the purchase of a home or property. The fee is two percent of the loan if you have never used your VA benefits in the past. The fee is three percent of the loan if you have used your VA benefits before. Usually, veterans will not pay this amount in advance they will have it rolled over into the balance of the loan which will make the balance of their VA loan more than the purchase price of the home or property.
• Mortgage Insurance – In the past lenders required borrowers to pay the first year premium for their remortgage insurance. These days they have changed that requirement and the mortgage insurance premium is paid along with the monthly best remortgage payment.
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