Closing Costs: How Much Does it Cost to Buy a Home?
Mortgage payments and possibly a homeowners warranty aren’t the only costs of owning a home. Nope, it doesn’t end with taxes and homeowners insurance either. Most people who set out to buy their first home are in for a surprise when the closing date approaches and they learn that they owe all sorts of money for the house they just bought.
Closing fees run about 2% to 5% of the purchase price of a home. That means that you should be prepared to pay a few thousand dollars on top of what you estimated would be your monthly mortgage payments -- and at closing. So, before you’re hit with a shocking upfront fee, we’re here to list all the various fees you’re responsible to pay when you buy a home.
There are fees associated with a home purchase. These fees are usually paid at the close of a sale, when the title of the home is transferred from seller to buyer. While costs vary based on the price of your property and where you live, they also fluctuate based on the kind of mortgage loan you have.
Here are the typical fees you’re likely to see:
Application Fee A lender application is required to check your credit and for an appraisal. Sometimes, lenders waive this fee or will negotiate with you for a lower price.
Appraisal To get the fair market value of your home, you will have to pay an appraisal company.
Attorney The closing documents for the sale of the home are legal documents which should always be reviewed by an attorney, even though this is not required in all states.
Broker Expect to pay 5% to 6% of the purchase price of the home on broker fees, half of which goes to the seller’s agent and the other half to the buyer’s agent.
Closing Fee/Escrow Fee The title company, escrow company or attorney get a closing fee, depending on whom conducts the closing transaction. The title company or escrow over the close and sometimes your state will also require that an attorney be at the closing on your behalf.
Courier Fee The cost of documents being shipped to various locations for completing the loan transaction quickly is your responsibility.
Credit Report You credit is pulled for your credit history and score. Your credit score determines the interest rate on your loan.
Discount Points Each point in this system equals one percent of your home loan. Points are prepaid interest and this lump sum payment lowers your monthly payments.
Escrow Deposit for Property Taxes & Mortgage Insurance Typically, a two-month payment of property tax and mortgage insurance payments are required at closing.
FHA Up-Front Mortgage Insurance Premium (UPMIP) You must pay a UPMIP of 1.75% of the base loan amount if you have an FHA loan or you can roll the cost into your loan.
Flood Determination/Life of Loan Coverage You’ll have to hire a third party to determine whether or not your property is located in a flood zone. If it is, you’ll be required to buy flood insurance, which is separate from a homeowners insurance policy.
Home Inspection While it’s not required, it’s always wise to hire someone to do home inspection to verify that the property does not require repairs.
Homeowners Association Fees This fee is often confused with a homeowners insurance fee but it’s separate. Usually this only applies to planned developments with shared spaces or condominiums and co-ops.
Homeowners Insurance You’re almost always required to carry homeowners insurance even if you have homeowners association fees, which are different. Often, the first year’s insurance coverage is paid at closing. Sometimes it is not. Whenever possible, you should come prepared with the right agent and your own options for a policy. Many people think their homeowners insurance is tied to their mortgage because the two get coupled together often. But they are independent of one another and you are free to choose a cost effective homeowners insurance policy on your own. To find an agent visit here and enter the zip of your new home.
Lender’s Policy Title Insurance As a measure to protect the lender, this insurance ensures that you own your home and that the mortgage is a valid lien. This protects your lender in case your title is problematic. First, make sure to find the right lender.
Lead-Based Paint Inspection This cost covers home check for lead-based paint risk.
Origination Fee This fee covers the lender’s administrative costs and costs about 1 percent of the total loan.
Pest Inspection This fee covers the cost to check for destructive pests like termites or dry rot. It is required in some states and almost always required for government loans.
Prepaid Interest Often you’ll have to prepay the interest that accrues from the time of the close to the date of your initial mortgage payment.
Private Mortgage Insurance (PMI) Usually, you are required to pay a PMI when your down payment is less than 20% of the home’s purchase price. You’ll need to make this payment at closing.
Property Tax Most lenders require that any taxes due within 60 days of purchase are paid at closing.
Recording Fees To add your home to a record of public land records, you will be charged a fee.
Survey Fee A survey company must be paid to verify all parameters of your property, including shared fences. This is not required in all states.
Title Company Title Search/Exam Fee The title company gets paid for doing a search of the property’s records and deed, making sure that no one else is claiming your property.
Transfer Tax You pay this tax when you buy the title from the seller.
Underwriting and Origination Fee This is a fee that goes to the lender for researching whether or not to approve you for a loan. This fee is often negotiable but almost always required.
VA Funding Fee If you have a VA loan, this fee is due at closing or it can be rolled into the loan. Some people are exempt from this fee, which is usually a percentage of the loan amount.
Wire Transfer Fee If you wire funds to purchase a home, be prepared to pay this fee.
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