It's no secret that buying a home can be expensive. Between the down payment, monthly mortgage payments, and all other associated costs, it's easy to see how your bank account can quickly dwindle.
But what many people don't realize is that there are additional costs that come along with buying a home –– known as closing costs. This post breaks down two types of closing costs you're likely to encounter during the homebuying process.
Title Fees
These are the fees associated with transferring property ownership from the seller to the buyer. The title is a document that establishes the ownership of the property.
The title fee includes the cost of a title search, which is an examination of public records to make sure there are no outstanding liens or encumbrances on the property. This is an important step in the process because it protects the lender's interest in the property.
It can sometimes include the cost of title insurance, which protects the buyer (and lender) from any potential claims that may arise from the previous owner's ownership of the property.
The title fee is usually a relatively small expense, but it's important to be aware of it so that you can factor it into your budget when you're planning for your closing costs.
Escrow Account Fees
When you're taking out a mortgage, your lender will open an escrow account for you. This account is used to pay your property taxes and insurance premiums on your behalf. When your tax and insurance bills come due, the funds will be withdrawn from your escrow account to pay them.
Lenders charge escrow account fees to cover the costs of setting up and maintaining the account. These fees are typically rolled into your closing costs when you close on your mortgage.
While escrow account fees may seem like additional expenses, they save you money in the long run. You can avoid late payment penalties and interest charges by paying your taxes and insurance through an escrow account. In addition, you won't have to worry about budgeting for these large annual payments.
Overall, escrow account fees are a small price to pay for the convenience and peace of mind they provide. These fees can vary depending on the lender, so it's important to ask about them when you're shopping for a mortgage. Factor these fees into your budget, so you're not caught off guard at closing time.
For more information on mortgages, contact a financial professional near you.
