Buying a Home
By: Real Estate Hotline
Spring 2019 (Vol. 37, No. 1)
Q: I want to buy a house for $120,000 and my down payment would be $4200. Will I have to pay anything else at closing?
A: That depends on the terms of the contract and the mortgage program you use. If your lender or the seller agrees to pay all or most of your closing costs, you could have very little else to pay. But, generally speaking, closing costs can be as high or even higher than your down payment. These fees can vary from 1% to 6% or more of the sales price, depending on your loan type and structure of the mortgage. What you pay at and before closing can also be referred to as “out of pocket” and “pre-paid” costs. To avoid surprises, be sure to ask your lender for a detailed list of everything you will need to pay before and at the closing. Customary fees and expenses can vary by state and who pays for what should be specified in your sales contract. Here are some common costs to expect:
- A Loan Origination Fee is paid to the lender you’ve hired to prepare your mortgage for closing.
- Discount Points are an optional fee that borrowers may be charged to pay down the interest rate on a loan.
- An application fee is paid to the lender to process your loan application.
- The credit report fee is paid to the reporting agency to provide an updated credit report.
- A property appraisal fee is usually charged upfront to the buyer to assure the lender of the property’s fair market value.
- Private Mortgage Insurance (PMI) is charged by mortgage companies to offset losses in case a mortgagor is not able to repay the loan.
- A property survey is done by the buyer prior to closing to verify the physical specifics of the property and all the real estate specific items on the land.
- A property inspector is usually hired by the buyer before closing to help identify any problem areas or repairs that need to be done. Your lender may also require a termite inspection.
- Title Company Fees are usually charged to both the buyer and seller for general closing services.
- Title Search and Title Insurance are to insure the title is free of defects. There is also a Mortgagee Title Policy for the buyers’ mortgage company.
- Recording Fees are paid to record your deed and mortgage on the public record. Some states also charge a title transfer fee that is based on a percentage of the sale’s price.
- A flood certificate is required in areas where heavy flooding can occur.
- The Buyer will pay for the taxes from the date of closing through the end of the year.
- One-year prepaid homeowner’s insurance is required by your mortgage company to protect their asset. You lender may require you to set up an escrow account with deposits for future taxes and insurance if these expenses will be included with your monthly mortgage payment.
- Home Owner’s Association Dues are only relevant to properties in neighborhoods with a home owners association.