Home buying 101: What are closing costs

1 year ago

At some point during the process of buying a home, the buyer will come across the term "closing costs." Closing costs are expenses incurred during the purchase of a property that are not included in the sale price. These costs are typically paid at the time of closing and can add up to thousands of dollars. Typically we use 3.5% of the accepted offer price as a rule of thumb. Check with your lender for the most accurate number. As a buyer, it's important to understand what items are included in closing costs so that you can budget accordingly.

Here are the most common items included in closing costs:

Loan Origination Fees: This fee is charged by the lender to process the loan application. It typically ranges from 0.5% to 1% of the loan amount.
Appraisal Fees: An appraisal is required by the lender to determine the value of the property. The fee for the appraisal is typically paid by the buyer and ranges from $300 to $500.
Credit Report Fees: The lender will require a credit report to determine the creditworthiness of the borrower. The fee for the credit report is typically $30 to $50.
Title company fees typically include a $200-$400 title search fee, a $300-$600 title examination fee. The settlement fee is around $500-$1,000, with document preparation fees at $100-$200 and recording fees ranging from $50-$300. Additional costs may include courier fees, wire transfer charges (about $30-$50), and other miscellaneous expenses. Reviewing the Loan Estimate and Closing Disclosure provides a precise breakdown of these expenses.
Title Insurance: Title insurance protects the buyer and lender from any legal disputes that may arise over ownership of the property. The cost of title insurance varies depending on the value of the property and the state in which it is located.
Broker Fee or Attorney Fees: Your Real Estate Agent works for brokerage, which can charge a admin or a servicing fee of some sort. this fee can be upwards of $500+. It is a one time fee usually paid at the closing (included in the closing cost) This is for the brokerage Processing and Holding your files. If you have hired an attorney, they may be present at closing to ensure that all legal documents are properly executed and charge a fee to you as well.
Home Inspection Fees: A FHA home inspection may be required by the lender to ensure that the property is in good condition according to FHA Standards. This would be done by the appraiser and is NOT a Full Home Inspection. This is different that the home inspection that you would have purchased at the time of your accepted offer.
Escrow Fees: Escrow is a neutral third party Usually the title company will hold the buyer's funds until all conditions of the sale have been met. The escrow fees typically range from $300 to $500. You would ONLY be charged this in the event something needed to be placed in escrow.
Recording Fees: The recording fees are charged by the county or local government to record the sale of the property. The cost of the recording fees varies depending on the location.
Survey Fees: A survey may be required by the lender to determine the boundaries of the property. The cost of the survey varies depending on the size of the property and the complexity of the survey. A survey fee will only be charged if one is needed.
Property Taxes: Standardly 2 months of Property Taxes will be collected to be placed in an Escrow account with your bank.
Homeowners Insurance: You will be required to purchase a homeowner policy and pay for it for the up coming year. You must provide a paid receipt or the money will be collected at the closing through your closing cost and paid directly to your insurance company on your behalf.

In summary, closing costs are an important aspect of the home buying process. As a buyer, it's important to understand what items are included in closing costs so that you can budget accordingly. The items listed above are the most common items included in closing costs. However, it's important to note that closing costs can vary depending on the location and the complexity of the transaction. In conclusion, You will be asked to bring a check to closing to cover all the cost that you may be charged, Including the amount of your down payment.

Click on the articles below to help you with your home buying process:

What does a first time home buyer need to know

Connect with a Buyers Specialist

Home Buying 101: The Mortgage Process

Home Buying 101: Writing a Purchase Agreement

Home Buying 101: Your Offer has been Accepted! Now What??

Home Buying 101: The Inspection

Home Buying 101: What are Closing Costs?

Home Buying 101: The Closing

Home Buying 101: What is Mortgage Escrow?

Home Buying 101: The Importance of a Title Company

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