What Are Closing Costs & How Much Are They?

What Are Closing Costs & How Much Are They?

Buying a new home is a very important step in your life. You are finally the owner of your own home and it deserves to be celebrated. For many, it’s a dream come true. However, in case you are on the market searching to buy a new home, then you need to keep in mind that the price you are paying for your home is higher than the one you offered. After all, before you actually get the keys of your own home, you still need to transfer the property to your name as well as you need to pay your real estate agent and/or attorney.

What Are Closing Costs?

Overall speaking, closing costs are all the fees that you need to pay that are directly linked to your home purchased. Closing is the time when you get the title of the property signed and transferred to your name and the closing costs are the fees associated with this process.

Notice that both the buyer and the seller have closing costs. So, before you make a bid on a home that you like, it is important to understand all the closing fees that you may need to pay.

Overall Look At Closing Fees

One of the things that you need to keep in mind about closing costs is that they vary a lot since they depend on a lot of factors. From the property you are buying to where you live, and even the type of loan that you choose play a role in the amount and closing fees that you need to pay.

Below, you can see a list of closing fees that are linked to buying a property. Nevertheless, it’s highly unlikely that you need to pay them all.

#1: Application Fee:

When you need to get a mortgage to buy a home, then you will need to pay for the application fee. Simply put, this is the fee that you pay to the lender and it may cover credit checks or appraisals. Keep in mind that not all lenders charge this application fee and in some cases, you may negotiate it.

#2: Appraisal:

This fee refers to a payment to the appraisal company. This company serves to confirm the market value of the home.

#3: Attorney Fee:

While an attorney isn’t required in all states, some states only allow you to close the transaction when there is a lawyer present.

#4: Closing Fee Or Escrow Fee:

This is the fee that is paid to the title company, escrow company or the attorney that is conducting the business.

#5: Courier Fee:

This refers to the fee that you need to pay for the transportation of the documents to complete the loan transaction faster.

#6: Credit Report:

When you want to buy a home, you need to have your credit score always in hand. Ultimately, it should show both your history and score and it serves to get a better interest rate on your loan.

#7: Property Taxes And Mortgage Insurance:

When you are closing the deal, you are usually asked to pay two months upfront of property taxes and mortgage insurance.

#8: FHA Up-Front Mortgage Insurance Premium (UFMIP):

In case you have an FHA loan, then you need to pay 1.75% of the base loan amount. Notice that this amount can be included in the cost of the loan.

#9: Flood Denominator Life of Loan Coverage:

This fee is paid to a third party that determines if the property is located in a flood zone. In case it is, you will then need to buy flood insurance but this fee isn’t covered here.

#10: Home Inspection:

As a buyer, you always want to ensure that the home you are buying is in good condition. So, it is normal to get a home inspection done to the property that you need to pay for.

#11: Home Owners Association Transfer Fees:

This is a fee paid by the seller to show what the dues are and that the dues are paid current. It should also include a copy of the homeowners association financial statements, notices, and minutes.

#12: Homeowners Insurance:

In most cases, the first ear of this insurance is paid at the closing and it serves to cover possible damages to your home.

#13: Lender’s Policy Title Insurance:

This insurance is a guarantee to the lender that you own the home and that the mortgage is a valid lien.

We Are Half Way There!

#14: Lead-Based Paint Inspection:

As you can easily tell by its name, this is the fee that you pay to get the lead-based paint inspected.

#15: Loan Discount Points:

This is a payment that you do to lower the monthly payment of your loan.

#16: Owner’s Policy Title Insurance:

This is usually an optional insurance. However, in case you are wondering, it serves to protect you in case someone decides to challenge your ownership of the property.

#17: Origination Fee:

This is the fee that you need to pay to cover the lender’s administrative costs. In most cases, it is about 1% of the total loan. Notice that some mortgages don’t include this fee.

#18: Pest Inspection:

Pest inspections are required in some states as well as they can be required for government loans. The fee serves to pay for the inspection for dry rot and termites.

#19: Prepaid Interest:

In case you need to get a mortgage, you need to be prepared to pay the interest that will accrue between the closing date and the date of your first mortgage payment.

#20: Private Mortgage Insurance (PMI):

While we would all love to pay for our home immediately, this isn’t possible for most. So, when you need to get a mortgage, you will also need to make a down payment. In most cases, a 20% down payment is the minimum required by lenders. However, in case you pay less than 20% of the home’s purchase price, you will almost always need to pay PMI. Additionally, you will also need to pay the first month’s payment at closing.

#21: Property Tax:

Overall speaking, you will need to pay all the property taxes due within 60 days of purchase at the closing.

#22: Recording Fees:

This is a fee that you need to pay to the local recording office.

#23: Survey Fee:

The survey fee is only required in some states and it serves to check all property lines. The company responsible also needs to check shared fences on the property.

#24: Title Company Title Search Or Exam Fee:

This is a fee that you can pay to a title company to ensure that no one else can claim the property.

#25: Transfer Taxes:

This is the tax that you need to pay when the title of the property passes from the seller to the buyer.

#26: Underwriting Fee:

This is the fee that is charged by the lender to discover if he will approve your credit or not.

#27: VA Funding Fee:

When you get a VA loan, you may be required to pay a funding fee at closing or you may include it in the total cost of the loan.

How Much Are Closing Costs?

Overall speaking, when you decide to buy a home, you may expect to pay between 2 and 5% of the purchase price of your new home in closing fees.

Notice that many of the fees that you are required to pay are negotiable and that you don’t need to pay for all the fees we mentioned above. It depends on the type of loan that you get, where you live, and also on our negotiation skills.

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