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Breaking Down Closing Costs

When it comes time to purchase a home, there are many costs involved. Saving for items such as the down payment, escrow deposits, inspections, and appraisals is important in the preparation of buying a home. One thing that many first time home buyers are unaware of, is closing costs.

What are closing costs?

Closing costs are the fees, costs and taxes associated with the purchasing of a home, the borrowing of money and the preparation of necessary paperwork to finalize the sale. The total amount of the closing costs will vary depending on location, property type, price, and the complexity of the transaction, and are usually in the range of 3-6% of the purchase amount. It is extremely important that the buyer work closely with his/her buyer’s representative, lender, and attorney in the early stages of the home buying process to determine what these costs could be, since closing costs can easily represent thousands of dollars. What exactly does this include?

Prepaid interest

Most lenders will require the buyer to pay the amount of interest that will accrue from the time you close, until your first mortgage payment is made

Private mortgage insurance

If your down payment is less than 20% of the purchase price, your lender will typically require you to pay private mortgage insurance, with the first months payment being due at closing

Origination fee

This can also be called an underwriting, administrative, or processing fee. According to Nerdwallet.com, “The loan origination fee is a charge by the lender for evaluating and preparing your mortgage loan. This can cover document preparation, notary fees and the lender’s attorney fees. Expect to pay about 0.5% of the amount you’re borrowing.”

Title search

A title search is is done to ensure that the person selling the property to you, is in-fact the owner of the property, and there are no claims or liens, on the property. 

Title insurance 

There are two types of title insurance, lenders title insurance and owners title insurance. Most lenders will require lenders title insurance, to protect them in the event of a third party claim that didn’t appear in the title search. Owner’s title insurance is highly recommended as well, as the coverage lasts as long as you, or one of your heirs, owns the property. Read our blog about title insurance here. 

Property taxes

Property taxes will be prorated to credit the seller for any taxes they have already paid for after closing, and your lender will typically also require you to pay for two months of property taxes as well. 

Fuel

In New England, home heating fuel can be costly, and unless the fuel remaining in the tank(s) is gifted to the buyer, the buyer must pay for what is left. The cost can vary greatly depending on how much fuel there is, and the current daily rate. 

While this is not an exhaustive list of closing costs, it gives you a good idea of what to expect in costs associated with your closing. Ready to start your home search? Click here to contact one of our helpful agents today!

Source: https://www.nerdwallet.com/article/mortgages/closing-costs-mortgage-fees-explained

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