As a home buyer, understanding closing costs is important. These costs are the fees and expenses that are paid when a real estate transaction is completed. While they may seem like a lot of money, they are typically quite reasonable when compared to the overall cost of purchasing a home.
By understanding what these costs include, you can better budget for your new home purchase. Let’s take a closer look at some of the most common closing costs associated with buying a home.
Closing Costs Explained
One of the first things to understand when you pay closing costs is that they are not all upfront costs. In fact, many of these costs can be paid overtime or even negotiated with the seller. That being said, it’s still important to have a good understanding of what you’ll be responsible for before signing on the dotted line.
What Are Closing Costs?
Closing costs are fees and expenses associated with the purchase of a home. These costs can include things like the loan origination fee, appraisal fee, title insurance, and more.
We’ll run through all the costs associated later in this blog post so you can make sure you don’t miss any within your calculations if you’re looking to buy a home.
Who Pays Closing Costs?
Both buyers and sellers typically pay closing costs, although the exact amount and who pays what can vary depending on the real estate market and other factors. In many cases, the seller will cover some of the buyer’s closing costs as an incentive to sell their home but if the buyer is very keen on making the purchase they can offer to cover some of the seller’s costs.
How Much Are Closing Costs?
The amount you’ll pay in closing costs will depend on a number of factors, including the price of your home, your state’s laws, and the type of mortgage you get. In general, you can expect to pay between 2 and 7% of the purchase price in closing costs.
Make sure you work out a rough estimate of what your closing costs will be so that you don’t find yourself struggling to come up with the money at the end of the buying process, and that you are organized with your finances so you can comfortably transfer over the money.
When Do You Know Your Closing Costs?
You’ll have a good idea of your closing costs once you’ve gone under contract on a home. At this point, your lender will give you a loan estimate which will outline all the fees and expenses associated with your mortgage.
It’s important to review this document carefully so you understand all the costs you’ll be responsible for. If there are any fees you’re unsure about, make sure to ask your lender for clarification.
A minimum of 3 days before closing, you’ll receive a final loan estimate which will outline any changes to your closing costs. This is your last chance to review the fees and make sure everything looks accurate before moving forward with the home purchase.
When Do You Pay?
While many of the costs associated with buying a home can be paid overtime, there are some that must be paid at closing. This will take place when you sign the final documents and officially become a homeowner. This includes your down payment, loan origination fee, and title insurance.
You’ll also need to have enough money on hand to cover any outstanding property taxes or homeowners insurance premiums.
What Can You Negotiate?
Just about everything in a real estate transaction is negotiable, including the closing costs. If you’re looking to purchase a home, it’s worth discussing these costs with the seller to see if they’re willing to reduce them.
Some of the closing costs which can be negotiated are the appraisal fee, credit report fee, and title search fees. If the seller is motivated to sell, they may be more likely to reduce or waive these costs altogether.
Attorney fees can also be negotiated, although it may be a bit more difficult to get the seller to budge on this.
Messenger fees, courier fees, and notarization fees are also usually negotiable.
All of the above should provide you with enough information to fully understand what goes into closing fees and how they’ll affect you when home buying.
Let’s now look at some of the specific fees associated, what they’re for, and a rough estimate of the cost.
Property-Related Costs
Property-related costs are as it says on the tin. Costs that are specifically related to the physical property you’re buying.
HOA Assessment
Cost: Variable
If the property you’re buying is in a community with a Homeowner’s Association (HOA), you will likely be required to pay an assessment upon closing. This fee goes towards the upkeep and maintenance of the common areas shared by all homeowners in the community.
The cost of this assessment can vary significantly, depending on the size and amenities of the community, so it’s important to get an estimate from the HOA before going under contract.
Transfer Taxes
Cost: Variable
When you purchase property, the government imposes a tax on the transfer of ownership. The amount of this tax varies depending on the location of the property.
For example, in New York City, the transfer tax is 1% of the first $500,000 of the sale price, and 2% of any amount over $500,000. So, on a $750,000 home, you would owe $5,250 in transfer taxes.
Property Taxes
Cost: Variable
In order to transfer the property into your name, you will need to pay any outstanding property taxes. The amount you’ll owe will be based on the value of the property and the tax rate for that area.
For example, if the property you’re buying is assessed at $250,000 and the tax rate is 1.25%, you will owe $3,125 in property taxes.
Survey Fee
Cost: $350 – $500
A house survey is a detailed report of the boundaries of a piece of property. The cost of having a survey done will depend on the size and complexity of the property.
If the property you’re buying is being sold as-is, and you don’t have a survey done, you may be required to pay for one before the sale can close.
Flood Certification
Cost: $15 – $25
If the property you’re buying is in a flood zone, you may be required to get a flood certification. This certifies that the property has been inspected for any damage caused by flooding and is in good condition.
Recording Fee
Cost: Variable
In order for the sale of the property to be official, the deed and mortgage must be recorded with the local government. The cost of this recording fee will depend on the county in which the property is located.
Escrow Fees
Cost: Variable
Escrow is a process where a neutral third party holds and manages the funds and documents for a transaction.
The escrow agent will charge a fee for their services, which can vary depending on the location and complexity of the transaction.
Home Inspection Fee
Cost: $300 – $500
A home inspection is a detailed report of the condition of the property. The inspector will look for any and all defects, no matter how small.
The cost of the inspection will depend on the size and location of the property.
Appraisal Fee
Cost: $300 – $400
An appraisal is an estimate of the value of a property. The appraiser will look at comparable properties in the area to come up with a valuation.
The cost of an appraisal will depend on the size and location of the property.
Loan Related Costs
There are also various fees directly related to obtaining your loan.
Loan Application Fee
Average Cost: Variable
When you apply for a loan, the lender will charge a fee to cover the cost of processing your application. The cost depends on the type of loan you’re getting and the lender.
For example, VA loans don’t require an application fee, while FHA loans have a standard fee of $20.
Loan Origination Fee
Average Cost: 0.5% – 5% of the loan amount
The loan origination fee is charged by the lender for processing the loan. The amount of the fee depends on the type of loan you’re getting and the lender.
For example, VA loans don’t have an origination fee, while most conventional loans have a fee of 1% – 2%.
Assumption Fee
Cost: Variable
If you’re taking over an existing loan from the previous owner, you may be charged an assumption fee. This fee covers the cost of transferring the loan to your name.
The amount of the fee will depend on the lender and the terms of the loan.
Attorney Fees
Cost: Variable
If you’re using an attorney to help with the purchase of your home, you will need to pay for their services. The cost will vary depending on the location and complexity of the transaction.
Prepaid Interest
Cost: Based on loan amount
If you’re borrowing more than 80% of the purchase price of the home, you will need to pay for prepaid interest. This is an up-front payment for the interest that will be due over the life of the loan.
The amount of prepaid interest will depend on the loan amount and the interest rate.
Discount Points
Cost: 1 Point = 1% of the loan amount
When you get a loan, you have the option of paying points. Points are an up-front fee that allows you to lower your interest rate.
The cost of one point is 1% of the loan amount.
Title-Related Fees
Title-related fees are charged by the title company to process and insure the transfer of ownership of the property.
Title Search Fee
Cost: $75 – $200
The title search fee is charged for the title company to research the history of the property. This includes checking for any outstanding liens or mortgages.
Owner Title Insurance Fee
Cost: 0.5% – 1%
Title insurance protects the new owner of the property from any claims that may be made against the title. The cost of title insurance will vary depending on the value of the home and the coverage you choose.
Lender Title Insurance
Cost: Varies
Lender title insurance is a requirement in some states. This type of insurance protects the lender from any claims that may be made against the title.
The cost will vary depending on the value of the home and the coverage you choose.
Insurance Related Costs
These costs are for insurance that is required or recommended when you purchase a home.
Homeowners Insurance
Cost: $500 – $1,000 per year
Homeowners insurance protects your home and belongings from damage. It also covers you if someone is injured on your property.
The cost of homeowners insurance will vary depending on the value of your home, the location, and the amount of coverage you choose.
Private Mortgage Insurance (PMI)
Cost: $30 – $70 per month
PMI is insurance that the lender requires if you’re borrowing more than 80% of the purchase price of the home. It protects the lender in case you default on the loan.
The cost of PMI will vary depending on the amount of coverage you choose and the lender.
FHA, VH, or USDA Loan Fees
Cost: FHA: 1.75% of your loan plus a monthly fee; VA: 1.25%-3.3% of your loan, dependent on your down payment; USDA: 1% of your loan
If you’re getting a loan through the Federal Housing Administration (FHA), Veterans Affairs (VA), or the United States Department of Agriculture (USDA), you will be charged a fee.
The amount of the fee will depend on the type of loan you’re getting and the lender.
Summary
When you’re buying a home, there are a number of fees and costs that you will need to pay. These include things like the down payment, loan origination fee, discount points, and private mortgage insurance. Be sure to factor these costs into your budget when you’re planning for your home purchase.
When you’re buying a home you may also be in the process of selling your own home. If you are, you will need to factor in the costs of selling as well. These include things like real estate commissions, staging, and repairs.
However, If you’re looking for a simple sale that doesn’t involve any of the usual hassles associated with home sales – like maintenance repairs, staging, or marketing – then consider selling your home to a cash buyer. With Simple Sell Home Buyers, our goal is simple – get a fair offer from us that you won’t want to refuse.
We understand selling a home doesn’t have to be difficult or complicated. That’s why we offer cash in as-is condition without repair costs and will close when you are happy with our offer. If you are interested in getting into contact with us or to schedule a home tour, give us a call at (+)1-516 603 5748.
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