It’s no mystery that there are closing costs whenever a buyer purchases a new home or refinances a property that they already own. The question is, what are these closing costs? To start, let’s break-up these costs into two categories:
The first category is non-recurring closing costs. These are closing costs that are associated with the transaction itself. Non-recurring closing costs include escrow & title insurance fees, loan underwriting, appraisal, credit report, any points you may be paying for your interest rate, as well as recording fees, and transfer taxes. These are called non-recurring closing costs since a borrower only pays them once, which is at the time of the closing of escrow. The borrower will not need to pay these costs again unless you decide to refinance or purchase a new property.
The second category of costs are recurring closing costs. These are costs that you will continue to pay once you own a home. Some examples of recurring closing costs include mortgage interest, homeowner’s insurance premium, property taxes, and HOA dues. Basically, anything that you would continue to pay if you owned a property.
While a borrower may have to pay some of these costs at the close of escrow, they are not incurred because of it. Regardless if you decide to refinance or not, you will have to continue to pay homeowner’s insurance premiums, property taxes, HOA dues and mortgage interest, assuming you have a mortgage.
Are property tax and homeowners insurance impound accounts considered closing costs?
If a borrower decides to impound their property taxes and homeowners insurance into a new mortgage, that means their new mortgage payment will include property taxes and insurance with their monthly mortgage payment.
Rather than having to remember to put money aside to pay their insurance and property taxes as they come due, the loan servicer pays them from the impound/escrow account on the borrower’s behalf.
When a borrower is getting ready to close on his or her new mortgage, they will have to make an initial cash deposit to establish their new impound account. While the initial deposit increases how much cash a borrower must bring to close on their new loan, it is technically not considered a cost since the borrower is setting up a prepaid account in advance.
The monies held in an impound account belongs to the borrower and should they payoff/refinance their mortgage, the unused portion of those funds will be refunded back to the borrower. As a result, impounds are always categorized as recurring closing costs.
If you have any specific questions about closing costs or mortgage financing, please give us a call at 760-930-0569.