Buying a new home is an exciting adventure, but being aware of all aspects of such a large purchase is incredibly important. Closing costs are a main part of any home purchase.
Closing costs are miscellaneous fees charged by those involved with the home sale (such as your lender for processing the loan, the title company for handling the paperwork, a land surveyor, local government offices for recording the deed, etc.). The average closing costs percentage is usually about 2-5% of the purchase price.
Closing costs vary widely based on where you live, the property you buy, and the type of loan you choose. The list below is inclusive of fees you may see, but it’s not likely that your loan will include all the fees listed here.
- Application Fee: This fee covers the cost for the lender to process your application.
- Appraisal: This is paid to the appraisal company to confirm the fair market value of the home.
- Attorney Fee: This pays for an attorney to review the closing documents on behalf of the buyer or the lender. This is not required in all states.
- Closing Fee or Escrow Fee: This is paid to the title company, escrow company or attorney for conducting the closing.
- Courier Fee: This covers the cost of transporting documents to complete the loan transaction as quickly as possible.
- Credit Report: Your credit score plays a big role in determining the interest rate you’ll get on your loan.
- Escrow Deposit for Property Taxes & Mortgage Insurance: Often you are asked to put down two months of property tax and mortgage insurance payments at closing.
- Flood Determination or Life of Loan Coverage: This is paid to a third party to determine if the property is located in a flood zone. The insurance, of course, is paid separately.
- Home Inspection: You will likely get your own home inspection to verify the condition of a property and to check for home repairs that may be needed before closing.
- Home Owners Association Transfer Fees: The Seller will pay for this transfer which will show that the dues are paid current, what the dues are, a copy of the association financial statements, minutes and notices.
- Homeowners’ Insurance: This covers possible damages to your home. Your first year’s insurance is often paid at closing.
- Lender’s Policy Title Insurance: This is insurance to assure the lender that you own the home, and it protects the lender if there is a problem with the title.
- Lead-Based Paint Inspection: Covers the cost of evaluating lead-based paint risk.
- Owner’s Policy Title Insurance: This is an insurance policy that protects you in the event someone challenges your ownership of the home.
- Origination Fee: This covers the lender’s administrative costs.
- Pest Inspection: This fee covers the cost to inspect for termites or dry rot, which is required in some states and required for government loans.
- Prepaid Interest: Most lenders will ask you to prepay any interest that will accrue between closing and the date of your first mortgage payment.
- Private Mortgage Insurance (PMI): If you’re making a down payment that’s less than 20% of the home’s purchase price, chances are you’ll be required to pay PMI.
- Property Tax: Typically, lenders will want any taxes due within 60 days of purchase by the loan servicer to be paid at closing.
- Recording Fees: A fee charged by your local recording office, usually city or county, for the recording of public land records.
- Survey Fee: This fee goes to a survey company to verify all property lines and things like shared fences on the property.
- Title Company Title Search or Exam Fee: This fee is paid to the title company for doing a thorough search of the property’s records.
- Transfer Taxes: This is the tax paid when the title passes from seller to buyer.
- Underwriting Fee: This also goes to your lender, covering the cost of researching whether to approve you for the loan.
- VA Funding Fee: If you have a VA loan, you may be required to pay a VA funding fee at closing.
Your lender will give you an estimate of closing costs on the purchase of a house you’ve selected. This is called a Good Faith Estimate, or a ‘GFE’. Then, the day before the closing, ask your lender for the actual “Settlement Statement”, which is the final and complete form with all the numbers for the sale, including the actual itemized closing costs. Finally, home buyers can negotiate with the seller over who pays these fees. Sometimes the seller will agree to assume the buyer’s closing fees.
Your real estate agent is the best source of information about the local community and real estate topics. Give Dragonfly Group AZ a call today at 602-820-8876 to learn more about local areas, discuss selling a house, or tour available homes for sale.