As you prepare to buy your new Utah home, it’s very important to factor the expense of closing costs into your budget. How much are closing costs in Utah? It’s impossible for me to determine how much your closing costs will be. There’s so much to take into consideration. What I can tell you is that it’s crucial for you to understand the factors considered when closing costs are calculated.
Why is ‘Truth In Lending’ Important?
The Truth in Lending Act (TILA) is a federal law enacted to protect consumers in credit transactions. Passed in 1968 and now part of the larger Consumer Credit Protection Act, TILA aims to promote transparency and fairness in lending practices. The law requires lenders to disclose key information about credit terms, costs, and conditions, ensuring borrowers have clear and understandable details before entering into credit agreements. TILA mandates the provision of a standardized Loan Estimate and Closing Disclosure, helping borrowers compare loan offers accurately. By empowering consumers with knowledge, TILA plays a vital role in fostering responsible borrowing and informed financial decisions.
The main reasons behind TILA’s creation were:
TILA was designed to safeguard consumers from misleading, deceptive, and fraudulent lending practices. The law aims to ensure borrowers have access to clear, accurate, and standardized information about credit terms, costs, and conditions.
TILA requires lenders to disclose all essential information related to credit agreements, enabling borrowers to make informed decisions and compare loan offers from different lenders.
Fair lending practices
TILA promotes fair lending practices by preventing lenders from engaging in discriminatory or exploitative tactics that could disproportionately affect certain groups of borrowers.
By providing borrowers with comprehensive information and disclosures, TILA empowers them to understand the true cost of credit, potential risks, and their rights as consumers.
Preventing predatory lending
TILA’s requirements help mitigate predatory lending practices, ensuring that borrowers are not subjected to abusive terms or unexpected costs that they may struggle to afford.
Truth in Lending Act is meant to level the playing field between lenders and consumers, fostering a more transparent and equitable credit market. By promoting honesty and accountability in lending practices, TILA contributes to consumer confidence and responsible borrowing.
What are closing costs?
Closing costs in Utah refer to the fees and expenses incurred during the process of finalizing a real estate transaction. The costs are typically shared between the buyer and the seller and are paid at the time of closing, which is when the ownership of the property officially transfers to the buyer.
The expenses vary based on the transaction and parties involved but some common components of closing costs in Utah include:
1. Loan-related costs
These include fees associated with the mortgage loan including (but not limited to):
- loan origination fees
- discount points (optional fees paid to lower the interest rate)
- credit report fees
- appraisal fees
These are charges paid to outside service providers involved in the transaction. They might include:
- title fees and title insurance
- attorney fees
- survey fees
- inspection fees
3. Prepaid expenses
Some items need to be paid in advance. These include but are not limited to:
- property taxes (the property taxes will be held in escrow until property taxes come due in your state)
- homeowners insurance
- prepaid interest
4. Escrow fees
Utah typically uses an escrow process, where a neutral third party holds funds and documents until the transaction is completed. Escrow fees cover the services provided by the escrow agent. These can include:
- courier fees
- recording fees
- document preparation fees
- notary fees
- any other administrative expenses associated with the closing process (i.e. courier fees, recording fees, etc.)
I said it before and I’ll say it again, closing costs can really vary. Following are some factors that affect the bottom line amount of money due at closing:
- purchase price of the property
- type of loan being used (conventional, FHA, VA, etc.
- property location
- Negotiations between the buyer and seller (this is why you need a great real estate agent on your side)
- The involvement of real estate agents or brokers
Don’t ever enter into a Utah real estate transaction without a clear understanding of what will be required of you at closing.
What’s a ballpark price of closing costs in Utah?
Closing costs in Utah averaged $4,837 in 2021, according to Bankrate.com. That includes taxes. The highest average closing costs were in Washington D.C. at $29,888. The lowest was in Missouri at $2,061.
How will I know how much to pay at closing?
In Utah lenders use a Closing Disclosure to report the amount of your closing costs. The Closing Disclosure is a standardized form that provides detailed information about the final costs associated with a mortgage loan. It is designed to help borrowers understand and compare the various fees and expenses associated with their loans.
The Closing Disclosure includes a breakdown of both the buyer’s and seller’s closing costs. The intention is to provide transparency. This document outlines the loan terms, interest rate, monthly payments, and the total amount of money you need to bring to closing.
Your lender will prepare and deliver the Closing Disclosure to the borrower at least three business days before the closing date. Take time to review it carefully. Compare it with the Loan Estimate you receive earlier in the loan process.
How can I lower my closing costs?
There are strategies to lower your closing costs. Your Utah real estate agent and mortgage lender can help you better understand the process of negotiation. Just remember, you need to weigh your options carefully as some discounts at closing can increase your costs during the life of the loan.
Not all lenders are created equal. Shop around for a mortgage lender that can offer you the best options. Closing costs vary among lenders so take the time to look for the most favorable terms.
Start looking for ways to negotiate at the beginning of the process. Some costs like lender’s title insurance and appraisal fees can be lowered. Lender’s title insurance guarantees a clean title to your home. It protects you and your lender by guaranteeing there are no liens or incumbrances on the hope you are purchasing. For example, if property tax was not paid by a previous owner, there could be a lien against it. That is not something you want to find out after you have signed on the dotted line. It is necessary and required by law. Ask service providers about discounts and decreased fees. You can choose some third-party services that offer flexibility.
Negotiate with sellers. You can request seller concessions through your real estate agent during negotiations. In some cases, the seller is willing to contribute to the buyer’s closing costs in Utah. This works best in a buyer’s market. It often happens when you are negotiating with a seller who wants a quick closing or if you the home you’re purchasing has been on the market for a long time. Seller closing costs are paid by the seller, but some motivations are powerful persuaders.
Explore down payment assistance programs
Utah offers various down payment assistance programs that can help buyers with their upfront costs, including closing costs. Research and determine if you qualify for any of these programs, as they can provide financial relief.
Down payment assistance programs are designed to help individuals and families overcome the hurdle of saving for a down payment. Between the cost of a down payment and closing costs, buying a home can seem insurmountable to some families.
Assistance programs offer financial assistance or grants to eligible homebuyers.Specific details and eligibility criteria vary depending on the program.
Here are a few examples of down payment assistance programs in Utah:
Utah Housing Corporation (UHC) Down Payment Assistance
Utah Housing Corporation offers several down payment assistance programs, including the FirstHome Loan program and the Score loan program. These programs provide low-interest loans or grants to assist with down payment and closing costs for first-time homebuyers and repeat buyers.
The HomeAgain program, administered by the Utah Department of Workforce Services, provides assistance to low-income individuals and families to help them achieve homeownership. The program offers down payment assistance, as well as homebuyer education and counseling.
Community Development Corporation of Utah (CDCU)
The Community Development Corporation of Utah offers down payment assistance programs targeted at moderate-income homebuyers. Their programs provide grants and low-interest loans to assist with down payment and closing costs.
Local Government Programs
Some cities and counties in Utah have their own down payment assistance programs tailored to their specific community needs. These programs offer grants or forgivable loans to qualified homebuyers.
To participate in a down payment assistance program, applicants typically need to meet certain income and credit requirements, as well as complete a homebuyer education course. The availability and terms of these programs can change over time, so it’s advisable to research current programs and contact the relevant agencies or lenders for up-to-date information and application procedures.
Down payment assistance programs can be valuable to buyers who struggle to attain the American dream.
More ways to save when buying a home
Some lenders offer credits to offset closing costs in exchange for a slightly higher interest rate. Be careful here. Take a close look at the long-term implications of such credits to determine if they are beneficial for your situation.
There are “no-closing costs” loans available out there. Some programs will fold buyer’s closing costs right into the loan and finance them. The downside to doing that is that it will cause your monthly payments to increase. It will also increase your loan-to-value ratio. This might seem like a good idea in the short term, but you’re making an investment here. Carefully weigh your options and seek the advice of a financial consultant if necessary.
Carefully review buyer’s closing costs and seller’s closing costs. Question any discrepancies you find. Your real estate agent can help you make sound decisions about your real estate purchase with the power of wisdom and experience.
Still have questions about closing costs in Utah? Call me! I am here to help. My team will walk you through every step of the home-buying process.