Closing costs are a critical component of any real estate purchase that involves completing the sale. The amount of these costs vary depending on a number of factors, including your local government, the lender you have selected, and even the precise day of your closing. Being aware of prospective costs is essential to getting ready for this important stage.
Breakdown of Buyer Closing Costs:
Closing costs are closely related to the sales price of the home, the county, and the state; certain charges are set by required fees. Here’s a breakdown of fees you may see on your closing statement; they usually range from 2 to 6 percent of the purchase price:
Application Fee:
- Charged by your lender to initiate the application process.
- Typically $100 to $350, mandated by the Truth in Lending Act (TILA).
Appraisal Fee:
- Conducted by a licensed property appraiser to verify fair market value.
- Usually $350 to $500, crucial in determining the loan-to-value (LTV) ratio.
Attorney Fee:
- Dependent on state requirements; an attorney may oversee and finalize the transaction.
- Varies but includes a thorough contract review, assistance, and legal representation.
Discount Points:
- Allow you to reduce mortgage interest by purchasing upfront points.
- Each point costs 1 percent of the loan amount.
Escrow Payments:
- Required by lenders to hold deposit monies in a separate account.
- Covers payments before closing, including taxes and insurance.
HOA Fees:
- Applicable if the community has an HOA; costs set by the governing body.
- Homeownership charges before taking ownership.
Homeowners Insurance:
- Proof of paid-in-full insurance for a year before ownership.
- Must cover the home’s full value.
Loan Origination Fees:
- Part of the lender’s processing costs, around 1 percent of the loan amount.
Prepaid Daily Interest Charges:
- Covers accrued interest between closing and the first mortgage payment.
PMI (Private Mortgage Insurance):
- Monthly charge if down payment is <20%, with an upfront premium at closing.
Property Taxes:
- In addition to escrowed taxes, daily prorations may apply.
Rate Lock Fee:
- Optional fee ensuring a specific interest rate for a limited period.
Survey Fee:
- Conducted by a land surveyor to verify property boundary lines.
Title Insurance:
- Ensures a clear title, costing 0.5 to 1 percent of the purchase price.
Underwriting Fee:
- Charged by the lender to verify financial information.
UFMI (Up-front Mortgage Insurance):
- FHA loans collect a 1.75 percent insurance premium.
Other Fees:
- Miscellaneous fees, including processing and documentation.
Credit Report Fee:
- Minimal cost for the lender to run a credit check.
Courier Fee:
- Charged for expedited delivery of closing documents.
Escrow Closing Fee:
- Fee for closing services, ranging from $300 to $700.
Flood Certification Fee:
- Required in flood-prone areas to prove the property’s status.
Pest Inspection Fee:
- Typically required by lenders before loan approval.
Recording Fees:
- Costs associated with recording deeds, mortgages, and titles.
Tax Service Fee:
- Ensures all tax liens are paid on the home.
Wire Transfer Fee:
- Charged for wiring funds to the third-party holding escrow.
Understanding these components empowers you to navigate buyer closing costs wisely and make informed decisions throughout the real estate transaction process.
