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What Makes Up a Home's Closing Costs?

What Makes Up a Home's Closing Costs?

July 30, 2019

The terms “Closing”, “The Closing” or “Closing Day” refer to the final step of purchasing a home.  It is a meeting that takes place between all the involved parties and is usually scheduled at the title company. The seller will transfer the deed of the home into the hands of the anxious buyer who will sign a variety of official, legal documents. 

Closing costs are the fees the borrower will pay at Closing which are above, and beyond, the actual cost of the property.  Closing costs usually run 2% to 5% of the home's purchase price, though, with some types of loans, no closing costs are required.  

Closing costs can be negotiable, but a home-buyer should assume he or she will pay for the entire amount to avoid any unwanted surprises. The type and amount of fees the buyer will pay will depend on the lender, the type of loan, and one's location.  

A Home's Closing Costs  

The closing costs for a home will/can include fees for the:

Appraisal –  An appraisal fee is paid to the professional who gives the lender an estimate of the home's current market value.

Attorney – If an attorney is hired to represent the buyer or the lender, a fee will be paid for the attorney's preparation and review of all the closing documents. 

Credit Report – Lenders may charge a fee for accessing and analyzing the credit information.

Flood Determination – Knowing if a home is located in a flood zone is important in order to determine whether or not a buyer will be required to buy flood insurance as an 'add-on' to the regular homeowner's insurance.  A third party will be paid to assess if the property is located in a flood zone.

Home Warranty – If a home warranty is purchased, the closing costs could include the entire annual home-warranty premium.

Homeowners' Association – If a home is part of an HOA, a prepaid portion of the HOA's annual dues may be paid at Closing.

Homeowners Insurance – Usually, the premium for the first year of the homeowner's insurance will be paid, in full, at Closing. 

Inspection –  A home inspector and, possibly, a pest inspector will get paid for their determination of a home's condition. 

Land Survey – This includes the cost of a surveyor who may need to survey the property, at the request of the lender. 

Origination – The lender will charge upfront money for making the loan, and origination fees can include application and underwriting costs. 

Notary – This is the cost of having a licensed notary public verify that the persons named in the documents did, without question, sign them.

Points – Another upfront fee paid to the lender for agreeing to a lower interest rate.

Prepaid Interest – If the loan were to close during the middle of the month, the lender would collect interest on the loan from the mid-month closing date until the last day of the month.

Private Mortgage Insurance – Some loan types require Private Mortgage Insurance which protects the lender against losses due to loan defaults.  The PMI premium could be an upfront fee or it could be collected in monthly installments, or both.

Property Taxes – As the name implies, taxes for the property are paid at closing – usually a total of six months' worth.

Recording Fees – A charge to record your deed and other mortgage documents are determined by state and local governments.

Real-Estate Broker or Agent – This fee is often paid by the seller.  These are fees paid to the seller's real-estate broker for listing the property and to the buyer's broker for bringing the buyer to the sale.

Title Insurance – This fee provides the necessary protection if someone were to sue and say they have a claim against the home.  This could include delinquent property taxes from a former owner or contractors who were not paid for work done on the home before it's most-current purchase. 

Title Search – The title company receives a fee for its search of public records of the property being purchased. 

Transfer Taxes – This term is synonymous with conveyance taxes, stamp taxes, and property transfer taxes.  They all have to do with taxes imposed by the state, county, or municipality on the transfer of the property.

According to Zillow, buyers pay an average of $3,700 in closing fees.  Often, too, many of the fees that make up closing costs are negotiable, and who your lender is can determine how much you can save! Bottom line:  shop around to find a lender willing to offer loans with lower fees at closing.

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