Closing Costs are a part of a mortgage’s three components, the others being down payment and the monthly payments. It encompasses all expenses, apart from the price of the home you wish to buy, required to finalize a mortgage. The majority of the closing costs are paid for by the buyer except for a few, like the commission fee for both the seller’s and the buyer’s agents.
Closing costs are not fixed and vary with the lender as well as the state. For example, the average closing costs for buying a home in South Carolina is $2,200, excluding any variable fees like escrow, title searches, and government-imposed fees.
In general, the closing costs fall within 2-5% of the purchase price, and the lender is required by law to inform the borrower of the same in the Loan Estimate.
Here are some of the many closing costs that you’ll likely have to pay if you want to secure a mortgage in South Carolina:
1. Property Related Fees
- Appraisal fee: A home appraisal is performed by a licensed/certified professional and typically costs between $350-$450. Appraisal refers to the unbiased opinion of a property’s value. It serves as a confirmation to the lender that they can recover the loan amount by foreclosing on your home if you default on your monthly payments.
- Home inspection fee: Home inspections are mandatory for government-backed mortgages and generally cost $300-$500 annually. It is an inspection of the structural integrity and the quality of the home for which you’re borrowing the loan. If the inspection turns up less than favorable results, then you can negotiate a lower selling price with the seller.
2. Loan Related Fees
- Application fee- Some lenders charge it for processing the loan/mortgage application. Sometimes, the application fee, the appraisal fee, and the credit-check fee are rolled into one and charged as a lump-sum amount.
- Credit Check fee- The credit check fee will be charged by the lender as part of the credit verification process during the loan processing.
- Discount Points- It is the fees paid directly to the lender during the time of closing in exchange for a lower overall interest rate.
- Closing Attorney fee- South Carolina law requires that the closing formalities are done in the presence of an attorney. Different attorneys have different rates, and the fee you’d have to pay depends upon the number of hours for which you avail their services.
- Loan Origination fee- It covers the work done by the lender during the underwriting process of the loan. It is typically charged at 0.5 percent of the principal amount.
- Prepaid Interest- This includes the interest accrued from the closing date to the date of the first monthly payment and has to be paid during the closing.
3. Escrow Fees
If you live in South Carolina, then chances are that you’ll need to open an escrow account when closing a mortgage. An escrow account is where the lender will hold your escrow money to pay the homeowner’s insurance premiums and property taxes whenever they become due.
- Property Taxes Escrow- South Carolina has an average effective property tax of 0.57 percent in contrast to the US national average of 1.08 percent. Part of the property tax (from the start of the year till the closing date) will be paid for by the seller, and you will be required to pay an extra two months of property tax into escrow.
- Homeowners Insurance Escrow- In general, you’ll need to pay 14 months of homeowner’s insurance premiums as part of the closing fees. Out of this, the lender will pay a year’s worth of insurance right away and hold the remaining two months’ worth of premiums in escrow until their due date.
4. Mortgage insurance Fees
- Government-imposed fee- This is only applicable for government-backed loans and depends on the government agency. In case your loan is insured by the Federal Housing Administration (FHA), you’ll be required to pay the FHA monthly insurance premiums and an upfront premium of 1.75 percent of the principal amount.
The US Department of Veteran Affairs (VA) and the US Department of Agriculture (USDA) backed loans will require you to pay a monthly guarantee fee.
- Mortgage insurance application fee- It covers the application processing fee for a Private Mortgage Insurance (PMI) that you are required to pay if your down payment is less than 20 percent of the principal amount.
- Upfront Mortgage Insurance fee – It can either be the first-year mortgage premium on the mortgage or one that covers the entire duration the insurance will remain active. The total mortgage insurance fee can be anywhere between 0.5-2.25 percent of the loan principal.
5. Title Service Fees
- Owner’s Title Insurance fee – The owner’s title insurance protects the owner in the case of any disputes or claims against the property. It lasts as long as the property remains in your or your heir’s possession and isn’t required to be repurchased if you refinance your home.
- Lender’s Title Insurance fee – It protects the lender against any losses incurred in case of a discrepancy in the title search where a dispute or a claim is made against the property after it is sold. The coverage lasts only for the duration of the loan, and its cost is regulated as per state laws.
- Search Abstract fee: It is the fee paid to a third party to find and obtain historical information about the ownership of the house. It confirms that the seller is the de-facto owner of the property and possesses the full right to sell it and has no outstanding liens. It is quite labor-intensive and costs an average of $200.
Avoid Hassles with Adequate Information
Closing costs are necessary to obtain a mortgage. However, the jargon used in the loan estimate forms can make it all the more difficult to spot and rectify any discrepancies which can lead to complications in the loan approval process in the future. Thus, you can use the data above to get a clear idea of what all those industry terms mean and how they can impact your closing costs.
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