If you’re a first-time homebuyer, the whole idea of “closing” on a home may sound mysterious and a little bit spooky. But it doesn’t have to be!
Be prepared for closing costs, which sometimes catch new buyers off guard. While every loan varies, approximately 2-5% of the purchase price of the home will be required at closing. For example, if you are purchasing a $250,000 home, you may need to have an additional $5,000 to $12,500 available for fees on top of the down payment amount.
What are these fees for, you’re probably asking?
Here are 10 of the most common closing fees:
1. Inspection Fees – A home inspector will examine the condition of the home. The average fee for this service is around $300. Depending on the area and the age of the home, other unexpected inspections may also be necessary to search for things like wood ants, radon, lead-based paint, asbestos, mold, etc. Each of these inspections cost extra.
2. Appraisal Fee – You will pay a fee to evaluate the home for its current value (compared it to other homes sold in the area) to make sure it is worth what you want to pay.
3. Realtor Fees – For getting you access into homes and helping guide you through the process, Realtors are paid a commission from the sale price of the home.
4. Origination Fee – This is the fee a lender charges you for originating a loan to you.
5. Discount Points – If you want to pay for a lower interest rate, commonly referred to as “buying down the rate”, you will be charged a fee; usually a small percentage of the loan amount.
6. Title Services – You will need to buy lender’s title Insurance to protect your lender against claims on the house. Owner’s title insurance is optional, but if elected, there is a cost.
7. Property Taxes – The lender collects for any tax due from you to pay your local government at the time of the purchase.
8. Government Recording Fees – When the local government records the sale, they charge a fee for it.
9. Initial Interest – You pay interest on the loan amount for the time between when you close and the end of the current month.
10. Private Mortgage Insurance – If your down payment is less than 20% of the purchase price of the home, you may also have to purchase this insurance.
As with any home purchase, I’m here to help answer all these loan questions! Call me at (602) 456-2195 and we can walk through all your closing costs together.
Sources: U.S. News & World Report and Kiplinger