BUYERS CLOSING COSTS…… THE BASICS
Most buyers ask the question early in our relationship, what are my closing costs going to be? Well here is the basic answer. You cost will vary depending on your loan program, seller concessions and differences in how taxes are prorated, etc.
I’m licensed in Michigan and taxes are paid differently in different parts of our state so this is specific to my area, southeast Michigan, the metro Detroit area. Your state may be completely different, even in the way transactions are closed. Here, you generally have all parties at the closing and everyone walks away with signed documents, keys and checks, unless you have a bank owned property which means you may wait a day or so for keys and seller signed documents. But this post is about costs, so I wont go any farther about the actual closing.
The first cost you might encounter on your settlement statement will be your Loan Discount or Origination fee (or both). These are commonly called “points” and equal 1% of your loan amount. You usually pay these to get a lower interest rate.
The other costs I’m going to talk about will be a range based on my past experience and could vary.
Next you will find your lender fees. These will include:
1. Appraisal- the value placed on you home by a state licensed appraiser $250-450.
2. Credit Report. $10-25
3. Tax service fee- a one time fee paid to monitor the paying of your taxes and insurance. $50-100
4. Flood certification- a determination of your homes flood status(do you need flood insurance?) $10-25
5. Application fee (some lenders may call it an underwriting fee, document preparation fee, etc) $300-600
There may be other fees in this section depending on the lender, review fees. Etc.
The next section will show your prepaid interest charge. This will vary depending on the time of the month you close.
This is how it works:
Mortgage interest is paid in arrears. This means when you make your payment on the first of the month, you are paying the interest for the previous month. (So when you make a payment on May 1st you are paying the interest for April)
For example, you are closing on March 15th. Your first payment will be due May 1st, which will pay Aprils interest. On your settlement statement you will be charged the interest for March 15th through March 31st.
If you are getting an FHA mortgage you will also find your upfront Mortgage insurance payment here. Again, this charge will depend on your mortgage amount.
If you are paying your first year of homeowners insurance as part of your costs it will also show up here.
Next section will show your escrow account if you have one. It will show how much you are initially contributing to the account to make sure there is enough money in the account upfront to pay taxes and insurance when they come due. This will vary depending on the time of year you are closing in relation to how taxes are collected in your area. This amount can vary a great deal.
Next is your closing fee to the title company and mortgage title insurance policy. The closing fee can vary widely but in my experience they are usually $250-500 for a real estate purchase. The title company may also add a couple other fees…email, overnight, recording processing fees to do some of the things they do outside the closing.
All lenders require that you provide them with a title insurance policy protecting their interest in the property. The amount will be equal to the loan amount and should be roughly the same no matter which title company is used. The rate is based on the loan amount and this is a one time fee.
Then come the recording fees. You will sign a mortgage which will be recorded at the county and become part of the public record. In our area they have a charge for the first page of around $14-18 and $3-4 dollars for each additional page. So, a mortgage will cost around $60-100 to record ( they average 11-15 pages and may have riders attached if it is a condo, investment property or etc.). The deed you receive from the seller will also be recorded which will cost and additional $18 –25.
After that it is the survey. This is a mortgage survey, not a stake survey. It doesn’t guarantee the lot lines it just shows that the house is on the right parcel and is inside the lot lines. $150-400
Another common charge you will see is a transaction fee from your REALTOR. Most of the time this fee is between $150-400.
So, this is a basic primer covering closing costs. If you have any questions about part of this post or any other real estate issues you can email me at tlynch@terrylynch.com. Make sure you put "REAL ESTATE QUESTION" in the subject line!
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