When buying a home, you know you should expect to have a certain amount of money saved for a down payment. But have you stopped to consider how much you’ll need to have set aside for closing costs? Here I’ll break down the fees associated with closing on a home.
What are closing costs?
In a nutshell, closing costs are those fees charged by third parties who are involved with the sale of a home. These can include your lender, the title company, local government offices and land surveyors. While closing costs can vary significantly from location to location, you can expect to pay up to five percent of the home’s selling price in additional fees.
Who pays the closing costs?
In general, both buyers and sellers are responsible for paying their share of closing costs. However, buyers typically pay a larger percentage than sellers – around three percent. While most of the fees are paid during closing, some are paid upfront, such as the inspection fees.
What are the fees due at closing?
The fees associated with closing can vary depending on where you live, but these are some of the costs you’ll most likely encounter:
- Application fee paid to the lender to process your application.
- Appraisal fee paid to the appraisal company assessing the value of the home.
- Closing fee paid to the title or escrow company, usually split between Buyer and Seller.
- Credit report fee paid when your lender reviews your credit to determine the interest rate on your loan.
- Home inspection fee paid to the inspector verifying the condition of the property.
- HOA transfer fee paid by the seller to verify payments are current.
- Homeowner’s insurance premium paid to insurance company to cover first year’s insurance.
- Origination fee paid to lender to cover administration costs.
- Prepaid interest fee paid to lender to cover interest that will accrue between closing and the first payment on your mortgage.
- Private Mortgage Insurance (PMI) fee that is levied if you put down less than 20 percent for your down payment depending on the financial product being used.
- Property tax fee paid to lender for any taxes due during the first 60 days of purchase.
- Recording fee paid to the local recording office for public records.
- Survey fee paid to survey company to verify property details.
- Title search fee paid to a title company to search the property’s records.
- Transfer tax fee paid when the title is transferred from the seller to the buyer.
- Underwriting fee paid to lender for research involved with approving your loan.
Can you estimate the closing costs?
When your lender provides you with a loan estimate, they will also include what your closing costs are expected to be. However, understand that these numbers are an estimate and can change. You can also check out this online calculator that will help you determine what your closing costs may be. Before your closing date, your lender will give you a Closing Disclosure statement, which will outline what the final closing costs will be.
Compliments of Chad Patterson