Calculating Closing Costs

When you submit an Offer To Purchase you will hear the terms closing and closing costs.  This can be a little confusing if this is your first real estate deal, but the closing is almost a ritualistic formality where everyone associated with the real estate transaction is represented in the end.

A meeting it set up to go over the entire contract one last time and explain who is getting what and who is paying for what. The closing costs are the fees associated with the real estate transaction.

 

What are the closing costs?

The closing costs can be anything from the title search to ensure a clear title to the inspection fee, to the recording fee associated with recording the transaction to public record. It actually can depend on where you are located as to who pays for what. This can also be determined by the sales contract signed between you and the seller. Many times the seller can be asked to pay all the closing costs. This would mean you do not have to pay any of the fees being charged. There are some you just will not get out of no matter how much you debate or negotiate. The appraisal is usually one of them. However most of the others can be negotiated effectively.

The seller will usually pay for things like the real estate commission and the loan payoff of their old mortgage. They can also pay for title insurance and, of course, any repairs needed on the property before possession. Any and all of these fees, except the mortgage can be a point of negotiation. This would have been done prior to closing so everyone knows what is expected of them.

The buyer will be asked to pay for the loan origination fee, property insurance, and inspections if there were any done. Depending on the area you live in the buyer may also be expected to pay the title insurance or even 50% of the transfer fees. Again, this is all something which was most likely worked out in the signing of the purchase agreement.

Below is a breakdown of the closing costs generally associated with the purchase of a property:

GENERAL FEES:

  • Title Search: $300 to $700 (If the buyer and seller are both getting title insurance, you can split the cost because the title company can do one search for both customers.)
  • Appraisal: Between $250 and $500 depending on the appraisal company.
  • Settlement/Closing Fee: $250 to $400 depending on title company.
  • Inspection: Between $300 and $400 depending on the size of the property and inspection company used.
  • Land Survey: $250 to $500 depending on the company.
  • Miscellaneous Fees: $200 to $400 (This can range from document preparation fees to special assessment processing fees.)
  • Tax Pro-rations: This will vary widely depending on community and property, but you should expect some debits if the seller has paid in advance, or some credits if the sellers haven’t paid for their portion of the taxes and Homeowners Associations fees.

BORROWING FEES:  (if you are financing the purchase)

  • Loan Processing Fee: $250 to $300 depending on bank.
  • Recording Fees: $100 to $200
  • Credit Report: Between $25 to $50 depending on the lender.
  • State Tax on the Mortgage: (Your State Tax %) x loan amount
  • Premium/Private Mortgage Insurance(PMI): The PMI can be negotiated. This is the insurance which states that a high risk loan is guaranteed against default. In other words, a lender who is giving a loan for 80% or more of the property value can charge the borrower a fee until the mortgage is paid down to under the 80% ratio. There are many changes occurring with the PMI, so be sure to discuss this with your lender.
  • Loan Origination Fee: This is the fee charged by the lender to make sure the loan process takes place. The typical charge ranges from 1% to 2% of mortgage amount depending on the bank or mortgage broker.
  • Discount Points: This is money paid to buy down the interest rate of the loan. Each point is valued at a percentage of the interest rate. In many areas 1 to 2 points can buy down the interest rate by as much as 1/2%. This can save the buyer money over the life of the loan.
  • Government Recording Fees: This can range depending on the area; however, these fees include the recording of the Deed, Mortgage and Release.

When financing your home purchase you may also have to budget for prepayments. Prepayments are escrow reserves some lenders require in order to grant you a loan. These will vary depending on the lender, but they usually include the following:

PREPAYMENTS:

  • From 6 to 12 months of homeowner’s insurance premiums.
  • From 3 to 6 months of prepaid mortgage interest.
  • From 3 to 6 months of prepaid mortgage insurance (if financing more than 80% of the value)
  • From 3 to 6 months of prepaid property taxes.
  • From 3 to 6 months of Homeowners Association(HOA) fees, if applicable on the home you’re buying.

PAYING CASH:

  • If you’re buying the come with cash you generally don’t have to pay borrowing fees or prepayments in Middleton, although the general closing fees and HOA prepayment will still be required.

Basically, all these fees usually amount to 4% to 5% of your purchase price if you are financing. Be sure to budget accordingly so you don’t get caught by surprise.

Of course, there may be other fees that are not included above. Each transaction is unique, but these are the basics. We highly recommend you speak with your real estate agent and mortgage lender to get a copy of what you will be paying at your closing.

 

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