In addition to a down payment, you will also have to have sufficient cash on hand to pay for closing costs. The person purchasing the home pays usually closing costs, but with some mortgages (VA for example) the seller can pay closing costs. A little-known fact is that a big part of costs and fees actually go to third parties who process the mortgage, as well as local governments as taxes.
The average closing costs percentage is usually about 2-5% of the purchase price. But all cash buyers may end of paying less and high risk buyers getting a loan may end of paying more.
As an informed mortgage customer, you should make your mortgage banker walk you through each cost, and explain in detail what you are paying. Lenders are required to give you a Good Faith Estimate.
It is advisable that you fully understand the total cost of purchasing a home in advance of finalizing a contract. State laws and fees will vary depending on the practice and real estate law within the state. Here’s a breakdown of the most common closing costs and fees with a rough estimate of average cost:
Appraisal :($200-$600) – This is paid to the appraisal company to confirm the fair market value of the home.
Buyer’s Attorney Fee: (not required in all states – $400 and up)
Lender’s Attorney Fee: (not required in all states – $150 and up)
Escrow Deposit for Property Taxes & Mortgage Insurance: (varies widely) – Often you are asked to put down two months of property tax and mortgage insurance payments at closing as a requirement by the lender.
Credit Report: (up to $50) – A Tri-merge credit report is pulled to get your credit history and score. You cannot supply your consumer pulled report and the scores pulled form the internet from any place other than myfico.com are not real scores nor are they accurate.
Closing Fee or Escrow Fee :(generally calculated a $2.00 per thousand of purchase price plus $250 – $500) – This is paid to the title company, escrow company or attorney for conducting the closing. The Title Company or escrow oversees the closing as an independent party in your home purchase. Some states require a real estate attorney be present at every closing.
Home Owners Association Transfer Fees – The Seller will pay for this transfer which will show that the dues are paid current, what the dues are, a copy of the association financial statements, minutes and notices. The buyer should review these documents to determine if the Association has enough reserves in place to avert future special assessments, check to see if there are special assessments, legal action, or any other items that might be of concern. Also included will be Association by-laws, rules and regulations and CC & Rs. The fee for the transfer varies per association, but generally around $200-$300.
Title Company Title Search or Exam Fee (varies greatly) – This fee is paid to the title company for doing a thorough search of the property’s records. The title company researches the deed to your new home, ensuring that no one else has a claim to the property.
Survey Fee (varies greatly) – This fee goes to a survey company to verify all property lines and things like shared fences on the property. This is not required in all states but will be required if you are getting a loan. The cost will depend on if an existing survey exists, if there have been additions or deletions to the property since it was last surveyed, the size and complexity of the property, et. al.
Courier Fee (up to $50) – This covers the cost of transporting documents to complete the loan transaction as quickly as possible.
Lender’s Policy Title Insurance: (Calculated from the purchase price off a rate table. Varies by company) – This is insurance to assure the lender that you own the home and the lender’s mortgage is a valid lien. Similar to the title search, but sometimes a separate line item.
Loan Application Fee: (Varies by lender) A fee charged to process an application for a loan, such as a home mortgage from a lender or mortgage broker.
Owner’s Policy Title Insurance: (Calculated from the purchase price off a rate table. Varies by company) – This is an insurance policy protecting you in the event someone challenges your ownership of the home.
Transfer Taxes :(varies widely by state & municipality) – This is the tax paid when the title passes from seller to buyer.
Recording Fees: (varies widely depending on municipality) – A fee charged by your local recording office, usually city or county, for the recording of public land records.
Processing or Loan Origination Fee :(varies by lender) – This goes to your lender. It reimburses the cost to process the information on your loan application.
Underwriting Fee: (varies by lender) – This also goes to your lender, covering the cost of researching whether or not to approve you for the loan.
Loan Discount Points: (often zero to two percent of loan amount) – “Points” are prepaid interest. One point is one percent of your loan amount. This is a lump sum payment that lowers your monthly payment for the life of your loan.
Pre-Paid Interest :(varies depending on loan amount, interest rate and time of month you close on your loan) – This is money you pay at closing in order to get the interest paid up through the first of the month.
Private Mortgage Insurance: If your down payment is less than 20%, the lender may require that you purchase this insurance to protect them from repossessing and selling the home for less than the loan value.
Property Taxes: proration depending on what has been already paid or is owed by the Seller:
Wood Destroying Pest Inspection and Allocation of Costs: – If required by the lender or buyer, the inspection generally runs up to $125.00
Last, but not least, you probably will get your own home inspection to verify the condition of a property and to check for home repairs that may be needed before closing. These inspections can include general inspection, RADON testing, seawall, pool and roof inspections, Chinese drywall, mold and more.
Closing costs and fees are part of a mortgage, and knowing what they are and how much they should be is a good idea. This will put you in a position to challenge a cost or fee that seems exorbitant. Even if everything is correct, you have the right to ask, and your mortgage company has the duty to explain — in detail — each and every closing cost and fee.