Closing Time
Aside from the price of a home, there are additional closing costs home buyers should take into consideration before signing a purchase contract. It’s important to have a full picture of these costs prior to closing time.
Closing costs can include everything from appraisal and loan origination fees to prepaid property taxes and mortgage insurance, among others. By understanding the different types of closing costs you can be better prepared in terms of your financial outlay and the closing process. Your escrow officer and lender are also available to help clarify closing costs and answer questions about your expenses.
Typical Closing Costs for Buyers
Lender Fees
If you are financing your home purchase, most lenders will charge an origination fee for establishing your loan, and some may charge an application fee to process your application. In addition, the lender will need to check your credit and there is a minimal cost for that process. A lender also will require an appraisal of the home to determine that its value is equal to the contract price. Depending on the type of loan, you may also be required to pay for mortgage insurance.
When discussing your potential mortgage with a lender, make sure you obtain a clear understanding and accounting of all the associated lender fees.
Mortgage Points
When interest rates are high, you can pay an additional amount to lower the interest rate on your mortgage. While this increases the upfront closing costs, it can save you money over the life of your mortgage.
Title Fees
A title company will conduct a title search to review all of the property records to ensure there are no liens or encumbrances on the title. The cost of the title search is assumed by the buyer since it serves to protect their interests as the new owner of the home. The fees also cover the costs of the closing process.
Title Insurance
In addition, if obtaining a loan, home buyers will need to obtain title insurance, which provides protection in the event that issues arise with the title on your property. Title insurance typically covers legal costs if errors or new information are discovered. Title insurance is not required if you are making a cash purchase but it is highly recommended.
Prorated Taxes
Buyers might be required to prepay property taxes when purchasing a home. The amount will depend on the assessed value of the property and can range from six months to a year’s worth of property taxes. In some instances it can end up being a credit from the seller to the buyer depending on when the taxes are due.
Home Warranty
A home warranty will cover major home appliances, electrical, plumbing, and HVAC systems. Unlike a homeowners insurance policy, a home warranty is a service contract that covers general wear and tear. Some realtors, myself included, will cover the cost of a home warranty for their clients.
Tips for a "No-Surprise" Closing
Review Your Closing Disclosure Carefully
Buyers receive a closing disclosure prior to the actual closing. This document provides an overview of the debits and credits to each party in the transaction. It’s extremely important to review the statement carefully to ensure there are no errors or omissions.
Shop Around for a Lender
Get pre-approved for a mortgage before you start looking for a home and ask your lender about closing costs. This will give you an idea of how much you can afford to spend. Shop around for the best interest rate and whether or not the lender provides any incentives.
Understand Your Costs Now and in the Future
Above all, when purchasing a home, make sure you are clear about all of the costs and have a good understanding of what you can afford in the immediate term as well as in the long-term.
Close with Confidence
When questions arise, the right guidance gives you peace of mind at all times. With my experience, I can help advise you on the questions to ask your lender so you understand your financial commitment completely. My goal is to ensure you are informed every step of the way and that you can close with confidence.
