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Understanding Your Closing Costs

One of those things that many home buyers, particularly new home buyers, don’t consider in the purchasing process or price of their new home are closing costs. These costs can add up to thousands of dollars leaving the home buyer scrambling to find the cash to cover the costs and purchase their dream home. In some cases, the seller may be responsible for a portion of the costs but often times, the majority of the fees are paid by the buyer. Here are some of the more common fees associated with closing costs that home buyers should know about before entering a contract.

Appraisal Fee. This is the costs associated with having the new home valued at the current market price. In a sellers market, the bidding wars on homes can escalate dramatically and an appraisal fee is there to help protect the buyer. In many cases, a bank will not issue a mortgage if the price of the home exceeds the value of the home. This is to protect the bank as well in case you default on the loan. Appraisal fees are usually a few hundred dollars.

Inspection Fee. Every new home should have an inspection. This provides information to the buyer and lender regarding the condition of the home. Inspectors will examine the home from top to bottom including items looking for things like water damage, termite damage, roof issues or foundation problems. The results of this process could affect the appraisal fee or even willingness of the bank to loan any money. The cost of an inspection is usually a few hundred dollars.

Loan Origination Fees. Unless you are coming to the table with all cash, chances are that you will need to take out a loan or a mortgage for your home purchase. There are fees associated with the processing of home loans that equate to a percentage of the total loan. This fee is not a set fee and may vary based on your credit score and other factors.

Title Search. This fee is charged to do the necessary background work to ensure that the seller of the home is the actual owner of the home, that there are no liens against the home, back taxes and that the property lines are accurate. If there are any discrepancies, you would certainly want to know before purchasing the property. This fee is usually around $100.

Title Insurance. Any home that carries a mortgage is required to have title insurance. This ensures that if there is any legal issues surrounding the home that you and the bank are covered. This is a one-time fee that buyers are expected to pay when purchasing the home. It is usually a few thousand dollars.

Deed Recording Fees. These charges cover the costs to register your new home purchase in your name with the county. The fees are usually under $100.

Escrow Fee. These fees cover the money paid to the title company and any attorneys fees involved in performing the title search and title insurance for their services. Their fees are a percentage of the total home purchase ranging anywhere under 1.5% of the total purchase price of the home.

To help you navigate the home buying process, I have provided a mortgage calculator for home buyers. This can help get you started on your home buying journey and provide some general information as you begin the process. We also recommend you speak with one of our loan officers for more specific information about your home buying goals and needs. We look forward to making your home buying process a successful one.

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