What Are Closing Costs?
Buying a home could be one of the most important purchases in your life. There are a lot of moving pieces and some fees that are either required or recommended to make a smart purchase decision. With the help of your mortgage banker and real estate agent, it’s easy to understand exactly what you are paying for and how much it will be. In this article, we provide an overview of the answers to the question, “What are closing costs?”
What Are Closing Costs?
Closing costs are the fees you pay to finalize a real estate transaction. They are paid at closing, when everything is signed and the keys are transferred over to you. Closing costs encompass both fees related to the property and fees associated with obtaining the mortgage to buy it.
Real Estate Fees
- Home Inspection Fee – You’ll want to make sure that your home’s condition has been evaluated. While an inspection is not required, they are highly recommended.
- Title Search – The title company you decide to work with will need to conduct a search of your home’s property records to ensure there aren’t issues with the title, such as a tax lien.
- Title Insurance – Your lender is protected from ownership conflicts or issues following the purchase of your home through title insurance.
- Property Taxes – Most buyers need to prepare to pay 3 to 10 months of property taxes at closing. The number of months will be determined by the length of time between closing and when the next property tax collection occurs in your county.
- Transfer Tax – Some cities and states require a fee for transferring property, which is split between the buyer and seller, with the buyer typically paying more of the fee than the seller.
- Real Estate Attorney – Your sales contract will be reviewed by a real estate attorney to make sure you are protected. While an attorney is not required, it is recommended.
- Application Deposit – Lenders begin to incur costs early in the application process. They will typically charge an application fee to cover these costs if you ultimately decide not to proceed with the loan. While this is not a closing cost, your application deposit may be returned to you as a credit at closing, as is the case with United Home Loans.
- Credit Report Fee – Fees are incurred when a lender pulls your credit report. Your credit will be pulled at least twice in the process, but some borrowers may go through more credit checks depending on whether they finance purchases or pay off loans during the mortgage process.
- Appraisal Fee – In order for you and your lender to get an accurate idea of how much your new home is worth in relation to the purchase price agreed upon by you and the seller, you will need to have an appraisal done. The cost of an appraisal varies depending on the size and location of your home.
- Origination Fee – Your origination fee covers the cost of the lender creating the loan. There is a complex behind-the-scenes system for building your loan that includes research by the mortgage banker, processing, underwriting, and closing. Some lenders charge a percentage of the loan amount but others, like United Home Loans, charge a flat fee.
- Points – Some borrowers will elect to pay points in order to lower their interest rate. This is not a mandatory closing cost- you and your mortgage banker will help you decide if this is a smart move for your personal situation.
Get the Real Numbers
The best way to get a true estimate of your closing costs is to speak with a mortgage banker. Get started by filling out the form below and a mortgage banker will help you get on the way to smart homeownership.