A mortgage for a house essentially has three components – down payment, monthly payments, and closing costs. It encompasses all the additional expenses, apart from the price of the home itself, for the lender to process your mortgage application. Most of the closing costs are generally paid for by the buyer except for a few, like the agent’s commission fees.
Closing costs approximately 2-5 percent of the purchase price, which the lender is required by law to inform you in their Loan Estimate. For example, the average home price in Missouri is $161,400. Hence, the closing costs in the state can vary anywhere between $3,228 to $8,070. However, this excludes all variable fees like escrow, title searches, attorney fees, and state-imposed charges.
Here are some of the many closing costs that you’ll likely have to pay if you want to secure a mortgage in Missouri:
1. Loan-related Fees
Application and Underwriting Fees
The application fee is what you pay to the lender to process your loan application. In contrast, the underwriting fee is remitted against the services rendered to draw up your loan documentation. These two can be clubbed into one or charged separately.
Discount points are an optional, up-front fee that you can pay directly to the lender to get a “discount” on your overall interest rate, which will lower your monthly payments. Here, one point equals 1 percent of the loan amount.
Loan Origination Fee
The loan origination fee covers the administrative work undertaken by the lender to process your loan. It is typically charged between 0.5-1 percent of the loan amount.
This covers the interest accrued from the closing date to the first monthly payment date and has to be paid during the closing.
2. Property-related Fees
An appraisal refers to the unbiased opinion of a property’s (potential) market value. It ensures the lender that they can recover the outstanding dues in the event of a foreclosure. Appraisals are performed by a licensed/certified professional and typically cost between $350-$450.
Home inspection fee
Home inspections verify the structural integrity and the quality of the home for which you’re borrowing the loan. They are mandatory for government-backed mortgages and generally cost $300-$500 annually.
Missouri-specific home inspections might include termite damage inspections and lead-based paint inspections.
Before your loan is approved, a surveying company will measure your property lines and fences to verify its boundaries. The survey costs cover the charges incurred during the same.
3. Mortgage-related Fees
Government-backed loans often require you to pay additional costs apart from your regular monthly payments. The charges depend on the government agency that is sanctioning your mortgage:
○ Federal Housing Administration (FHA) – The FHA charges an additional up-front payment at 1.75 percent and an annual premium at 0.45 – 1.05 percent of the loan amount.
○ United States Department of Agriculture (USDA) – The up-front fees and the annual premium charged by the USDA stand at 1 percent and 0.35 percent, respectively.
○ United States Department of Veteran Affairs (VA) – The VA doesn’t charge an annual premium, but the up-front fee is set at 1.4 – 3.6 percent of the loan amount depending on the size of your down payment.
Mortgage insurance application fee
If your down payment is less than 20 percent of the loan amount, you’ll need to purchase Private Mortgage Insurance (PMI) to ensure the lender against any possible payment default.
4. Escrow Fees
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
The state of Missouri determines the property taxes. Part of this tax (from the start of the year till the closing date) will be paid for by the seller. You can keep any additional amount worth of property tax in your escrow account.
Homeowners Insurance Escrow
For most government-backed loans, 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.
5. Title Service Fees
A title dictates the legal ownership of a piece of property. Thus, when buying a new home, you as the buyer must be able to prove to the lender that the seller is indeed the owner of that property, possesses full rights to sell it, and has no outstanding liens against its name. The fees accrued during this process come under title service fees.
Title Search fee
Title search is conducted by real estate attorneys or title insurance companies by combing through public records to confirm the seller’s legal ownership. It is a labor-intensive task and will set you back an average of $200.
Title Insurance fee
In addition to the title search, you will also need to purchase a title insurance policy to protect both yourself and the lender in case of disputes against the title. The owner’s policy will be based on the purchase price, while the lender’s policy will be based on the principal amount. The cumulative cost will be approximately 0.5 – 1 percent of the property’s purchase price.
A Final, Yet Crucial Step
The closing is the final stage in the somewhat complex process of homeowning. Now, although closing costs account for a fraction of the purchase price of the property, some unnecessary fees can still burn a hole in your pocket if you’re not vigilant enough.
Here are some things to consider before you pay your closing dues and finalize your home buying process in Missouri:
- Ensure that you go through the loan Estimate (provided by the lender that includes Closing Cost Estimates) with a fine-tooth comb to identify hidden or unnecessary charges in your mortgage. For example, processing and underwriting fees are often the same, but can be drafted separately to confuse buyers.
- Missouri levies property taxes at 0.93 percent in contrast to the US national average of 1.07 percent. You can take advantage of this by opening an escrow account to avoid unnecessary penalties for tax defaults.
- Unlike many other states, Missouri does not require you to have an attorney present during the closing process.
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