When it comes to a real estate purchase the down payment is generally the largest out-of-pocket cost. However, the buyers will also find themselves responsible for closing costs – the fees associated with your home purchase that are paid at the closing of a real estate transaction. Closing is the point in time when the title of the property is transferred from the seller to the buyer.
These closing costs encompass a variety of lender and third-party fees. The total amount due are unique in each transaction, but may range from 1.5% to 2.5% of the purchase price of a home. It is important to note that closing costs can be financed as part of the deal or be paid upfront. While the exact total will vary based on where your property is located, the type of loan you choose and a multitude of other factors. We want to highlight two types of fees you may encounter: recurring costs and nonrecurring.
As highlighted by Trulia, “Recurring costs are ongoing expenses that you will continue to pay as a homeowner, with a portion due upon closing; nonrecurring fees are one-time fees associated with borrowing money and the services that were required to purchase the property.”
Recurring costs are placed in your escrow account and the most common ones are property taxes, homeowner’s insurance and title insurance.
- Property Tax: Typically, lenders will want any taxes due within 60 days of purchase by the loan servicer to be paid at closing.
- Homeowners’ Insurance: Most lenders will require this. This covers possible damages to your home. Your first year’s insurance is often paid at closing.
- Owner’s Policy Title Insurance: This is an insurance policy that protects you in the event someone challenges your ownership of the home. (usually covered by the seller)
Nonrecurring closing costs are fees paid to your lender and other professionals involved in the transaction. They include things such as the origination fee, home appraisal fee, underwriting fee and myriad of others:
- Origination Fee: This covers the lender’s administrative costs. (Usually about 1 percent of the total loan but you can sometimes find mortgages with no origination fee)
- Appraisal: This is paid to the appraisal company to confirm the fair market value of the home. (Typically around $500)
- Underwriting Fee: This also goes to your lender, covering the cost of researching whether or not to approve you for the loan.
- Home Inspection(s): You will likely get your own home inspection to verify the condition of a property and to check for home repairs that may be needed before closing. Typically $300-750 home inspection $0-100 termite inspection, $250 sewer line inspection.
This helpful calculator will help to provide a rough estimate of what to expect paying in closing costs. You can also request a Good Faith Estimate when you first apply for a mortgage loan that will give you an idea of the cost. Your lender will outline approximate closing costs in the GFE so you have a fair idea of how much the loan will cost you. This will depend on whether you’re financing the closing costs into your mortgage or whether you’ve decided to pay them upfront.
Your real estate agent can also help to provide you with a break down on each closing cost and where it originates. At the Weber Accetta Group, we are eager to help provide insight into each and every cost that may arise. We recognize that when closing time finally hits, it can be overwhelming and we would love to help navigate all the pot holes! If you have any questions or real estate needs, feel free to reach out!