Each residential real estate transaction, whether it’s cash or utilizes a loan, has closing costs that must be addressed before the loan is finalized. While the amount for certain types of closing costs can vary depending on local or state laws, the types of closing costs involved in real estate transactions around the country remain consistent.
The list of closing costs is extensive, but buyers can feel more at ease knowing that most lenders allow many of the closing costs to be rolled into the final loan. If you want to keep your monthly payment down and reduce your overall cost of ownership, then you should pay your closing costs up front.
Types of Closing Costs
When a potential home buyer is calculating their buying budget, it’s important to have a good grasp on the types of closing costs and how much they will add to the final transaction.
This fee is typically set at one percent of the total purchase price and it is created by the lender as an administrative cost for preparing and executing the loan.
The buyer can purchase points to lower the interest rate of the loan. Typically, one point is equal to one percent off the interest rate.
Loan Application Fee
This is a secondary fee the lender adds to process the application and purchase your credit report.
Private Mortgage Insurance (PMI)
Any private mortgage secured with less than a 20 percent down payment usually has PMI added in to the monthly payment. This is protection for the bank in case the property goes into foreclosure, and it is usually a percentage of the final purchase price.
This is the amount of interest you owe for the remainder of the month. For example, if you close on April 10th, then this fee would be the amount of interest charged between April 11th and April 30th.
Lender’s Title Insurance
Title insurance protects you or the lender against any legal claims against the house.
Your escrow account will collect all your taxes and property insurance fees. When you close on your house, you will usually have to pay the prorated amount of the first month’s escrow deposit. This works the same way as prorated interest.
The buyer is responsible to pay for the appraisal done to confirm the value of the house. That fee is charged at closing.
To finalize a change in the deed and the lending papers, the property must be surveyed and the survey compared to the existing records on file with the city or town.
Each local, county, and state government has deed and loan recording fees that are charged at closing.
Sales and Transfer Tax
Some governments charge a fee to transfer the deed from the seller to the buyer. It is also common for the local and county governments to charge sales tax at the area’s going rate based on the purchase price.
Buyer’s Title Insurance
This title insurance protects the buyer from any kind of possible legal claims against the property or the building. For example, if it is an older house with a survey that shows a portion of the house to be on the neighboring property, then title insurance would cover any costs associated with taking care of that issue.
Many buyers either pay their attorney fees up front, or don’t use an attorney at all. Attorney fees are usually one to two percent of the final purchase price.
Your real estate agent is the best source of information about the local community and real estate topics. Give Jon Bastian a call at 772.291.8851 or Nancy Bastian at 954.816.2061 to learn more about local areas, discuss selling a house, or tour available homes for sale.