Keller Williams Realty
Why Are Closing Costs So High When Buying A House?
That is a very good question. I spoke with a buyer today that was hesitant in making an offer on a $150,000 house because his closing costs were going to be $8000. What could possibly cost $8000!
Often times the closing costs are more than the down payment. This is especially true on an FHA mortgage where the down payment is 3.5%.
Let's look at what some of these closing costs and other expenses are. Most of these are paid at closing but not all of them.
Your first expenses will be any inspections or tests that you may have done on the house that you are buying. These can range from $250 to as much as $1000 depending on what type of inspections you desire. Generally speaking the average for a home inspection including a termite report is about $350.
Your next expense will be the cost of the appraisal. The appraisal is the one that tells you how much the house is worth. Currently, appraisals cost about $500.
You will need a survey of the property. It is possible that the seller has a survey but if not you will have to have one. The survey tells you where the property lines are and currently run about $500 for a house lot. If you are in the country and buying an acre or more that number will vary.
Who is keeping track? We are somewhere between $1350 and $2000.
Another big expense you will have is your homeowners insurance. The lender will require that you pay for it one year in advance and place 2 months in your escrow account so that when the bill comes the next year you will have enough in it to pay for the following year. Let's say your insurance is $2000 per year. That would come to a total of $2,333 for your homeowner's insurance.
Now let's say that the taxes on the house are $2500. The seller will be responsible for the taxes until the day of closing and you will be responsible for the rest of the year. That is figured differently depending on the month of the year you close. The tax bills come out November 1. But for our purposes with the prorations and accounting for when your first payment is due, you will end up putting about 3 months worth of taxes in your escrow account. That is $625.
Who is keeping track? We are now between $4308 and $4958.
Now we move into lender fees. Not all lenders charge exactly the same thing but most are very similar. These fees include things like a lender title insurance policy, underwriting fees, processing fees, attorney fees, and a few other incidentals depending on the lender. My best guess would be that these fees would equal about $2000.
Lastly, we are at the title company to close. Their fees range from $185 to $250 depending on the title company you use.
Who is keeping track? Now we are ranging on the low side at about $6500 and on the high side about $7200.
In my example above, the buyer also had to pay for his own title insurance policy (typically a seller expense) of $1180.
So doing all of these numbers, you can easily see how you can get to $8000
pretty easily. The two things that have the greatest variables are the cost of the homeowner's insurance policy and the amount of taxes on the property.
I hope this breakdown has helped you understand how this all works. As a Realtor representing you, a buyer, I will negotiate and have the seller help with closing costs.
Let me give you an estimate of closing costs for the house you choose with me!
Keller Williams Realty
3955 S Soncy Rd
Amarillo, TX 79119