Buying Your Home - Escrow & Closing Costs

How can I save on closing costs?
Studies show that the closing costs, which can average 2 to 3 percent of a total home purchase price, are often more costly than many buyers expect. But there are some ways to save:

* Get a no-point loan. The trade-off is a higher interest rate on the loan. But buyers who are short on cash and can qualify for a higher interest rate may find a no-point loan will significantly cut their closing costs.
* Get a no-fee loan. Usually, though, these fees are wrapped into a higher interest rate though it will save you on the amount of cash you need upfront.
* Seller financing is rarely done in this area due to the shortage of inventory on the market.
* Shop around for the best loan deal. Each direct lender and each mortgage brokerage has their own fee structure. Call around before submitting your final loan application.

Who pays the closing costs?
Closing costs are paid by the home seller and home buyer. The biggest expenses for the seller are the broker's fee, New Jersey transfer tax (with a different rate for seniors), and attorney fees.  The buyer is responsible for inspection costs, mortgage application and appraisal, taxes put into an escrow account and attorney fees, which includes a title search which he orders.

What are closing costs?
Closing costs are the fees for services, taxes or special interest charges that surround the purchase of a home. They include upfront loan points, title insurance, escrow or closing day charges, document fees, prepaid interest and property taxes. Unless, these charges are rolled into the loan, they must be paid when the home is closed.

Where do I get information about closing costs?
For more on closing costs, ask for the "Consumers Guide to Mortgage Settlement Costs," Federal Reserve Bank of San Francisco, Public Information Department, P.O. Box 7702, San Francisco, CA 94120 or call (415) 974-2163.  I am also happy to provide you with a sheet breaking down what closing costs are in this area.

Why do I need a title report?
As much as you as a buyer may want to believe that the home you have found is perfect, a clear title report ensures there are no liens placed against the prior owners or any documents that will restrict your use of the property.  A preliminary title report provides you with an opportunity to review any impediment that would prevent clear title from passing to you.  When reading a preliminary report, it is important to check the extent of your ownership rights or interest. The most common form of interest is "fee simple" or "fee," which is the highest type of interest an owner can have in land.  Liens, restrictions and interests of others excluded from title coverage will be listed numerically as exceptions in the report.  You also may have to consider interests of any third parties, such as easements granted by prior owners that limit use of the property. Some buyers attempt to clear these unwanted items prior to purchase.  A list of standard exceptions and exclusions not covered by the title insurance policy may be attached. This section includes items the buyer may want to investigate further, such as any laws governing building and zoning.