Closing costs for buyer are something that is often overlooked by homebuyers when purchasing a house. This is because when preparing their budget for buying a house they tend to miss out on calculating all the possible closing costs and incorporating them into the budget.
Therefore, it is crucial that you research and know the possible closing costs that you might need to incur when buying your home to avoid any unpleasant experience in your home-purchasing journey.
So, let’s try to dig deeper and understand what exactly closing costs are and what are the various types of costs that get covered under the umbrella of closing costs for buyers.
What Are Closing Costs?
Simply put, closing costs are expenses and fees incurred at the very end of the home-buying process. The reason these expenses are called “closing costs” is that they are not included in the purchase price of the property and are typically paid to third parties like real estate brokers, agents, attorneys, government agencies, and similar entities. These expenses are actually required to be paid to finish the deal.
Before a real estate transaction is completed, closing costs have to be agreed upon and legally disclosed to both the buyer and seller.
While the seller may bear some of the closing costs, the buyer bears the majority of them which can be one-time costs. For qualified buyers, government programs or state financial agencies may offer closing cost assistance too.
Closing costs can vary across states because of different fees and regulations from statutes. For example, buyers in New York pay closing costs that range from 1.5% to 6% of the agreed-upon value of the home, with an average of roughly 3%.
Closing costs can involve costs like title search fees, attorney fees, insurance, taxes, record filing, underwriting of a mortgage, and so on. We shall take a closer look at these costs in the blog further.
Most Common Closing Costs For Buyers
Here’s a list of some of the most common closing costs that you may incur as a buyer.
1. Mortgage Application Fee
When you apply for a loan to buy a house, the lender will charge you an application fee to process your loan request. This is one of the most common closing costs for buyers, as the majority of them use home loans.
2. Credit Report Fee
The credit reporting charge refers to the cost associated with obtaining a credit report. During the credit score verification process, you grant lenders access to your credit record. Using one of the three credit bureaus – Experian, TransUnion, or Equifax—they examine the credit record. Lenders include the monthly premium these agencies charge to access credit reports in closing costs for buyers.
3. Appraisal Fee
The cost of hiring a professional appraiser to determine the home’s value is covered under the appraisal fee. Appraisal is crucial as it helps in setting the value of the property that you wish to buy. This process helps you to ensure that you aren’t overpaying for the property.
4. Home Inspection Fee
Paying the home inspection fee is part of the process to assess the property’s condition. It covers the cost of hiring a professional to make sure the house is in decent condition and is worth the money.
5. Title Search Fee
This fee is applicable for the title search. The purpose for this is discovering any liens or claims against the property that the seller might not be aware of. To review public records such as land records, tax liens, deeds, court decisions, etc., you need to work with a title company.
6. Title Insurance Fee
Charging this fee is necessary to furnish title insurance, mandated by the lender for the buyer to address ownership concerns after the sale.
7. Attorney Fee
A real estate attorney’s compensation includes the cost for preparing and reviewing contracts and home purchase agreements. It goes directly to the attorney to aid in drafting relevant documents and facilitating the transaction.
8. Escrow Deposit
At the closing, it’s common practice for lenders to ask for a deposit of two months’ worth of property tax and mortgage insurance payments into an escrow account.
9. Closing Fee
The closing company receives the closing costs. Also known as Escrow fee.
10. Courier Fee
A courier fee is applicable for the transportation of documents.
11. Transfer Tax
It is the tax that is levied by the local or state government for transferring the property’s title from the seller to the buyer.
12. Prepaid Expenses
These expenses include homeowner insurance, property taxes, and the mortgage interest that will accrue between the closing date and your first monthly payment.
13. Other Costs
Other costs can include the recording fee, survey fee, underwriting fee, origination fee, PMI, and so on. Lastly, you may also have to incur some closing costs depending on your situation. For example, if the property is in a flood zone, you may also need to pay for flood insurance.
The Final Say
It is particularly important to include closing costs in your budget because they can be unexpectedly high. Saving enough money to pay these costs is the best course of action, even though you might be able to lower them or perhaps have them rolled into your mortgage loan.
Therefore, figuring them out is necessary for a seamless house purchase procedure. The type of loan, the services needed, and whether you would rather pay more in full now or over time all affect these expenses.
For precise closing estimates, review the closing disclosure. Also, remember to look over and bring all necessary paperwork to the closing.
At Elite Properties, in order to ensure that you are not taken aback by any hidden closing costs when you get ready to purchase your house, we try to make the home-purchasing process as straightforward as possible. We also provide first-rate customer service to minimize the stress associated with house buying. Get in touch, we are just a click away!