New Condos Downtown San Diego - Nonrecurring Costs

Before You Buy:     Closing Costs

When you purchase a property, whether Downtown San Diego, or somewhere else in San Diego, you hear about “closing costs.” The term is pretty simple and understandable. Closing costs are the associated monies needed to close the sale. What kind of “closing costs” gets a little more complicated. This article will review the “one time closing costs” commonly referred to as “nonrecurring costs”. Recurring means more than once, so it makes sense to think that nonrecurring means only once. Here is a brief overview of some of these type costs.

Home Inspection Fee:

Most agents recommend that you have a qualified inspector check the house for hidden problems, such as mold, a leaky roof, or any other home condition that could affect your desire to purchase the property. This inspection will help you and your agent decide if there are any deal breakers, or if there are repairs you would like to request. Just because you request a repair doesn’t mean the seller will complete it, but you will have the home inspection to verify the current condition of the property.

Closing costs:

These costs are generally related to the mortgage you are taking from the lender to purchase the property. The amount varies by location and can range from 2 to 5 percent of the loan amount. Closing costs may include a loan application fee, credit report, appraisal, title search and insurance fees. Closing costs may also cover third-party services that are directly charged to the borrower, such as the escrow fee, county recorder fees, notary fees or any other one-time fee. Types of costs and amounts can vary by the type loan you obtain. VA has a VA funding fee that is generally added to the loan. FHA has a mortgage insurance fee that is generally collected upfront. Your lender will provide you with a “Good Faith Estimate” for a specific sale price upfront. Be aware that the word “estimate” means that...an estimate. Your closing costs may be a little higher or a little lower. Expect the best but prepare for the worst as the old saying goes. Your agent may have written the offer to ask the seller pay these closing costs.

Prepaid Costs:

Prepaid costs are collected at the close of escrow to fund your escrow account. These costs cover recurring expenses such as homeowners insurance, taxes, private mortgage insurance (PMI) and any special assessments (Mello-Roos fees). The amount of fees will depend on what they are and the closing date. Generally fees are prorated thru the end of a month. In other words, if you are closing on the 10^th of the month. Your lender will request escrow to collect “prepaid” interest on the loan from the closing to the end of the month. The benefit to that collection of “prepaid” interest is that you will not have your first mortgage payment until 30-45 days after the close of escrow. Mortgage interest is different from rental cost. Rent is collected upfront for the upcoming month. Mortgage interest is collected at the end of the month for the previous month.

Down payment:

Homebuyers provide an upfront payment called “earnest money.” This is money that secures the contract and makes it a viable offer. This “earnest money” is applied to either your down payment or closing costs at the closing.

This is a series of home buying articles provided by Sharyn & Victoria Crown. We have borrowed from Michele Meyer’s Before You Buy article in the Spring 2009 Wells Fargo Your Home Magazine