Uncategorized January 27, 2020

What Do Closing Costs Cover?

The costs of the home purchase is more than just the sale price. For example, closing costs, which make up about 2% to 5% of the home’s purchase price, are an added expense.

Your Lenders provide a Closing Disclosure (CD) at least three business days prior to closing on a mortgage. But as a buyer you’ll need to budget for these added costs ahead of time.

Origination fees. This is the fee charged by lenders for processing the application and underwriting it. The fee typically ranges from about 0.5% to 1% of the borrower’s mortgage.

Service charges. These include items such as the appraisal, credit report, flood determination and certificate, tax status, pest inspection, title search and insurance, and survey fees. Appraisals and surveys can cost anywhere between $300 to $500 each.

Transfer taxes and recording fees. Transfer taxes vary by state. It does not matter if the buyer or seller pays, as long as the transfer tax is paid to the government, so transfer taxes can be negotiated between the buyer and seller.

Escrow items. Homeowners insurance, property taxes, and primary mortgage insurance (if applicable) also are added fees. Buyers moving into a homeowners association may need to pay monthly dues for the upkeep of the community.

Example: A buyer purchasing a $275,100 home with a 5% down payment makes the loan amount $261,345. Closing costs are estimated at 2.5% of the loan value, so $6,533. The buyer made a $2,000 earnest money deposit at the time of the initial purchase offer so the remainder needed is $4,533 in cash at the time of closing. A Total of approximately $20,288.00 in cash to pay for the down payment and closing cost.