At the point when the title of a property is conveyed to a buyer, closing costs have to be paid. While most people spend a lot of time thinking about saving enough for a down payment, few people think about closing costs. But, exactly what are closing costs? To put it simply, closing costs are the various fees that are paid at the closing of a real estate transaction. This means that closing costs are additional expenses, over and above the price of the property. Closing costs typically range from 2% – 6% of the purchase price. Here are some common expenses that will make up your overall closing costs.
Firstly, an appraisal fee is an expense incurred in the engagement of a third-party appraiser to determine the real market value of a home.
If you have retained an attorney to help you with the paperwork for your closing, then you will need to pay the attorney.
The entity that conducts the closing on your home also needs to be compensated. The entity could either be an escrow company, an attorney of a title company.
In some instances, you will also be required to foot the bill for the transportation of your mortgage documents.
Credit report and monitoring
You will also incur charges for your lender obtaining your credit report. Besides this, you will also have to meet the cost of your lender retaining a credit monitoring service to inform them if your credit changes during the process.
You may be required to put some money into escrow. This money will be used to cater for things such as property taxes and insurance premiums.
Most lenders will require you to carry homeowners insurance on their mortgaged property. Usually, at closing, you will be required to pay your annual premium upfront.
The origination fee will go to your lender and will meet the cost of processing and underwriting your mortgage loan.
At times you may have to pay for the interest that will accrue on your loan between the time that you close on the loan and the date of your first mortgage payment.
Private mortgage insurance
If your down payment is less than 20% then you will most likely have to get private mortgage insurance. The premiums will be paid monthly as a part of your mortgage payment.
You may also be required to pay a certain amount of your property taxes upfront. This amount will be held in an escrow account.
Rate lock fee
Some mortgage lenders will charge you a rate lock fee. If your lender charged you a fee to lock in your interest rate, you will pay this fee at closing.
If you got a land survey to determine where the property’s boundaries lie, you will meet that cost at closing.
Title insurance provides you with cover against issues that may arise around the property’s ownership and who has a legal claim to the property.
Transfer tax is a fee for transferring the property title to you.
Before closing, you will need to carry out a title search to figure out if any other parties have a legal claim to the property.
Estimating closing costs
There are so many variables that will impact how much you will pay in closing costs. Every country, state, town and locality have their own rules, regulations and stipulations regarding the home buying process. These regulations also impact the types of fees and services included in a home purchase transaction. As such, closing costs vary greatly from one country to another. Besides this, different types of loans have different costs associated with them. Generally, when you apply for a home loan you will receive a loan estimate document. The loa estimate document will provide an estimate for your total closing costs.
Do seller’s having closing costs?
Both sellers and buyers will have to pay something at closing. The costs that a seller will be responsible for will primarily depend on what the buyer and seller have agreed to. Here are a few costs that the seller might be expected to cover or contribute towards:
- The buyer’s and seller’s real estate agent commission
- Transfer tax
- Seller’s attorney fees
- Property taxes
- Escrow fees
- Buyer’s title insurance