Closing costs are a huge variable cost when buying a home. Calculating them is rather complex, but we will do our best to clarify and simplify them here.
Below is an overview of most normal closing costs, as well as how they are calculated. So that you have an idea of how much you might pay, we have even included rough estimates based on our experiences.
As a side note, if you ever want to find out your exact closing costs (within a very narrow range), let us know, and we will work the numbers up for you!
Settlement or Closing Fee
This is a fee to compensate the title company for facilitating the closing. This changes depending on which title company you use.
This is basically a junk fee that is only charged when an attorney is handling the closing, as opposed to a title/closing agent. This fee is not really necessary, but is a way for the attorney to make more on the closing in our opinion.
Lender’s Title Insurance
$5.75/$1,000 up to $100,000; $5.00/$1,000 up to $1million; more calculations on larger loans
This is an insurance policy to protect the lender in case there was ever a title issue in the future. This is calculated with a formula that is based on the loan amount. The percentage charged is bracketed and changes as the loan amount gets larger.
State Tax/Stamps on Mortgage
This is a fee to Uncle Sam because he can. It is calculated based on the mortgage amount, but is not bracketed like the lender’s title policy.
Your lender may collect from you ahead of time, the final few month’s of property taxes for the year. So, if you close in with 2 months left in the year, you may have to pay the final 2 month’s of property taxes at closing.
Prorated or 12 Months
Many lenders want to collect an entire year’s insurance up front. We have seen situations in which the lender only collects for the rest of the year. So, depending on who you are using for a lender, they may require for the rest of the calendar year, or they may require 12 full months.
Lenders like to collect HOA dues up front as well. Expect to pay the HOA dues required for the rest of the calendar year at closing.
If you are closing in the middle of the month, it is normal for a lender to collect the interest for the remaining days in the month up front.
This is the fee for your home inspector. You are able to choose the inspector/company. This cost goes up the bigger the house is and if your insurance wants a wind mitigation report, you can expect to pay an extra $100. $400-500 is most common in our experience.
This is basically a termite inspection that many lenders require. You are usually able to choose your own pest inspector, but we find they all are very similar and usually cost $90.
Lenders require an appraisal to ensure they are not lending too much money on the house. The lender always chooses the appraiser, so don’t expect to be able to shop around in order to save $100.
Lenders typically require a boundary survey and normally choose/schedule the survey company as well. $300 is most common in our experience.
Origination Fees, Points, or Broker’s Compensation
These are fees for the lender or insurance broker to make more profit. For conventional loans, 1% of the loan amount is a relatively normal fee. Every loan program is different however and some lenders do not or cannot charge this. If you are getting a loan such as an FHA, VA, or USDA loan, you may not be charged any points, but there is typically a fee charged every month, sometimes for the life of the loan.
Other Loan Charges (Recording fees, Misc certifications, Credit report, Other)
These are miscellaneous fees charged by the lender. They charge for everything they can, so don’t be surprised by a few extra line items.
When you go to buy a home, choose an agent who is meticulous, comprehensive, and experienced. Give us a call today or contact us online to experience something better!
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