What are typical closing costs on buying a home?

To answer an important question we get asked quite frequently I have compiled some general information on Closing Costs when you buy a home.  These will vary and is part of the way a good real estate agent partner helps make your transaction easier.   Getting with a mortgage lender in the beginning stages of your search really helps us to better answer your questions to help direct your search.  Based on this information we may choose an area that will qualify for USDA loans (zip code specific), if you should use your VA benefit, what type of down payment you may need and if you qualify for any down payment assistance programs.  You may qualify even with surprisingly high income and even new homes.  Partnering with an agent that takes the time to understand your entire situation can be of great benefit.  Our value as a partner in your transaction is not limited to finding the home, that actually is one of the smallest factors because most homes can be accessed via the internet.  Where our value comes in is helping wade through taxes, HOA's, where to find school and local information, helping with various vendors, negotiating with homebuilders and other sellers on your behalf. 

Now for the subject at hand:

Your down payment isn’t the only money you’ll need to pay the day of closing. You’ll also need to plan for the costs associated with borrowing the money, government taxes, and other fees you may not be aware of. It’s important to understand these additional fees so you know precisely what you are paying for when you buy your new home.

What are closing costs on a home? True to their name, homebuyers pay closing costs when the time comes to close on a home. A lot of these fees are related to the processing of your loan application, title preparation, and legal documents. They tend to vary between  two and five percent of a home’s sale price. Just because you pay closing costs during the last part of the homebuying process, doesn’t mean the amount should come as a surprise.

Here is a run-down of the costs you should expect to pay at closing:

Pre-Paid Expenses
Unlike other closing costs, pre-paid expenses are related to the ongoing costs of home ownership, which includes interest on your loan, insurance, and taxes.  Because of the timing on when these items are paid each year, your lender will require that you pre-pay a certain amount.

These expenses include:

• Pro-rated interest charges from the date of closing through the end of the month
• If applicable: mortgage insurance premium (MIP) and/or two to three months of monthly mortgage insurance if you haven’t put down 20% of the home’s value.
• Homeowner’s insurance (amount will vary based on quotes and amount of months required by lender.)

Lender Fees
Lender fees include a fee for running your credit report, as well as fees for underwriting and closing your transaction. You should already have a general idea of the amount of money you owe in lender fees when the time comes to close on your new home. By law, lenders are required to give you a Good Faith Estimate (GFE) of what their closing costs will be on your home. You should receive the GFE within three business days of when you apply for a loan, far before your closing date. When you get your GFE, take note of the fees.  Some fees, such as underwriting and processing fees, are under the lender’s control and are negotiable.

Discount points
Discount points may be paid to obtain a lower interest rate, and each point equals 1% of your loan amount.  One point typically lowers your interest rate by .25%.  You and your lender would agree on the payment of points at the time you lock in your interest rate.

Title Related Fees and Charges
Title search fees cover the cost of a background check on the title to ensure that there are no unpaid property taxes or other liens on the property.  Other title charges include title insurance which will protect you in the event there is a dispute over the title or property in the future.

Government Recording Charges and Taxes
Government recording charges are paid to the state and local government agencies for recording important documents, such as your home’s deed and mortgage.  Many states also impose taxes on the deed, note or mortgage.

Title related fees and government recording charges are not controlled by the lender and are therefore non-negotiable. Remember, a GFE is only an estimate of what you should expect to pay.

One to three days before closing, your lender should also give you a settlement statement.  This document outlines your final closing costs. You should compare the GFE that you received from your lender to that document and take note of any differences.

This is a basic summary of closing costs, which can vary depending on location and property. Help yourself become more familiar with the homebuying process with help from your real estate agent. 

When you employ a Buyer's Agent on a new home or resale (existing home traditional seller) this in addition to a buyers' comparable market analysis is something that we help guide your through and typically the Seller pays the fee.