Closing Costs: The Basics
Congratulations! After weeks or months of research and shopping, you’ve finally found the perfect home and are ready to buy it! Here’s everything you need to know about the fees you’ll have to pay at the closing of your sale. These are called Closing Costs and you should put aside 2-5% of the moan amount to account for them.
HINT: It’s best to pay your closing costs out of pocket in order to avoid paying large interest amounts on them.
But, what are they, really?
Closing Costs To Look Out For
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Application Fees: When creating an application to take out a loan, an application fee is charged to cover the cost of processing your request as well as other administrative costs. It can cost you between $150-500.
Attorney’s Fees: In addition to other legal fees, some places require an attorney to be present during closing. The cost would vary depending on your legal advisor.
Loan Origination Fees: One of the most important fees, the origination or processing fee covers costs associated with preparing your mortgage. This can be things like documentation, (lender’s) legal fees, etc. It will usually cost you 0.5% of the loan amount.
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Appraisal Fees: Appraisers estimate the value of a property. This is a necessary step in the home-buying process, and the fee covers the cost of a professional appraiser. Average costs range between $350-700.
Home Inspections: Inspections are an essential step when choosing your home in order to ensure that it is structurally sound and does not boast any water damage, mold or toxic metals in it’s make up. It can cost between $200-600.
Property Taxes: You may have to pay a portion of your home’s annual property taxes upfront, depending on your lender. Ask your lender whether this applies to you.
Home Owner’s Insurance: You may have to purchase home insurance prior to closing, in case of vandalism and/or theft. Check with your lender to see if this applies to you.
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Mortgage Insurance Fees: Some lenders may require this if your down payment is less than 20%, check with your lender for costs and other information.
Mortgage Broker Fees: If you choose to shop with a mortgage broker instead of going straight to the lender, they may charge you a commission fee. This fee ranges between 0.5-2.75% of the loan amount.
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Title Search Fees: Title searches are necessary in order to prove the ownership of the house as well as check for any outstanding debts. This can be a tedious process, and the fee covers the cost of manpower. In most cases, a title search costs between $75-$200.
Lender’s Title Insurance: This loan policy covers the lender in case the title search turns up an error, and someone else is laying claim to the property.
Owner’s Title Insurance: This is optional; consider purchasing this in case someone lays claim to your property after closing. It may cost you around 1% of the purchase price.
Finally, you want to double check that you have all the necessary documents, including a Loan Estimate and Closing Disclosure. Click on the button to read more about these and other costs that might turn up!