I just finished talking to a prospective client, and a question I get a lot that is usually directed to their loan officer is how much are home buyers closing costs? It’s a great question and some mortgage lenders quote 2-3% of the purchase price. Here’s a breakdown just so you have a better idea when you’re ready to take the plunge to buy a home.
Application Fee
Set by the lender, the mortgage application fee usually ranges from $200-$400.
Appraisal and Credit Report Fee
In simplest explanation, your lender of choice will order a third party appraiser to assess the value of the home you are about to purchase. The credit report fee covers the cost of running your credit history. Together, these fees may range from $100-$400.
Building Inspection
There is a home inspection fee, whereby a third party home inspector will conduct a thorough evaluation of the key home exterior and interior elements. For instance, the inspector will examine the foundation, structural, roof condition/estimated age, exterior siding, gutters and any other exterior damage. If the paint is chipping, the inspector may note possible chipping paint and if the home is constructed before 1978, there may be lead concerns. Some lenders may want the chipped paint re-mediated. Most inspector fees range from $150-$400.
Survey
This document details the location and dimensions of the home’s lot. Typically required, the cost is $300-$450.
Legal Fees
Naturally, if you’ve made it this far, you’ve likely retained an attorney to guide you through the contract sale. Attorney fees to guide you through the home buying process and protect your interests. Remember, always consult your real estate attorney. Fees vary depending on the type of purchase (condominium, single family residence, duplex/multifamily or commercial transaction) ranges from $1200-$1800.
Title Search Fees
Before your settlement date (closing date), to ensure there are no complications in receiving a free and clear property title, a title search is run. Any items unresolved from current homeowner/seller will need to be discharged. The fees are approximately $200-$500; sometimes included as part of title insurance costs.
Title Insurance
This insurance protects you from costs associated with possible title complications. The cost varies, usually about $1400-$2000 for homes priced $150,000-$200,000.
Private Mortgage Insurance (PMI)
Usually required if your down payment is less than 20% of the purchase price. The average premium is 2.5% of the mortgage, with a portion of the total premium due at closing. Recently Bank of America announced a 3 % down payment program without PMI.
Homeowners Insurance
Homeowners insurance is required by your mortgage lender and serves as protection for your new home and its contents. Cost depends on factors such as home size, location, type of construction, coverage limits, and deductibles.
Flood insurance, if applicable
Often times, a home that may be in a flood zone is marked on the MLS data sheet and/or can be searched by www.fema.gov, the FEMA map. Flood insurance is mandatory if the home is in a flood zone. Rates vary depending on coverage limits.
Prepaid Interest
This is paid to the lender to cover interest on the mortgage. Estimate the interest beginning from the day of closing to the end of the first month of ownership.
Points
Points are a form of pre-paid interest. Anywhere from 0-4 points are paid to the lender. For home buyers looking to reduce their mortgage interest rates, points are paid. 1 point equals 1% of the mortgage loan amount. Paying points should be determined based on the duration of the loan (typically 15 vs 30 years).
Escrow Fees
Escrow fees are also paid to the lender is a reserve fund to cover obligations such as 3 months real estate taxes, 3 months fire/flood insurance and 3 months PMI premium (if applicable)
Realty Transfer Tax
This tax may be imposed by states, counties or municipalities to transfer realty ownership. The tax is fixed to the house’s price and is paid by the seller in some states. Consult your attorney for possible exemptions.
Recording Fees
Paid to the local government to record the purchase transaction. Cost range is $40 – 60. Again this will depend on your county/state fees.
Doc Prep and Notary Fees
This is a separate fee that some lenders or title companies charge to cover their costs of preparation of final legal papers, such as a mortgage, deed of trust, note or deed.
The notary fee is charged when a licensed notary public swears to the fact that the persons named in the documents did, in fact, sign them.
Overall, that’s what home buyers closing costs amount to. Did you add it up? It can range from an additional $7000-$10,000 (again depending on a lot of variables, home loan, property taxes, etc). Be sure to consult an attorney for a comprehensive estimate designed specifically for your situation. Keep in mind that some of the closing costs may be paid to either the seller or added to your mortgage otherwise known as a seller concession.
