Many buyers typically overlook how much needs to be saved for the many fees due when purchasing a home. These fees include closing costs (one-time transactional fees), escrow fees (for continued expenses) and prepaid fees (for continued expenses), which are usually required to be paid at the closing of the sale. Depending on your location, lender, mortgage type, home type and financial situation, closing costs can vary.
Closing costs are expenses that are paid to the lender in exchange for the loan services and can cost an average of 2%-3.5% of the home price*. These costs are in addition to the down payment and mostly paid out of pocket unless it is negotiated in the sale of the home. For example, a $300,000 home could have closing costs between $6,000 – $10,000 depending on your lender and the vendors used for the services*.
These expenses for buyers include, but are not limited to:
Closing Costs
- Application Fee – Fee to process the loan request
- Appraisal – 3rd Party Appraiser to determine the value of the property
- Attorney Fee –Massachusetts requires an attorney be present to review the closing documents
- Closing Fee or Escrow Fee – Fee for the title company/escrow company for conducting the closing, typically divided 50/50 by the buyer and the seller
- Courier Fee – The cost to transport documents for a quick transaction
- Credit Report – Cost to pull your credit score for the loan determination process
- Flood Determination or Life of Loan Coverage – Third party to determine if you property is in a flood zone.
- Home Inspection –Inspector to check on the condition of the home to identify needed repairs that may be needed before closing
- Home Owners Association Transfer Fees (only homes with a HOA) – Paid for by the seller, but paperwork is given to the buyer with what is owed, if it is current, association financials, and minutes and notices.
- Lead-Based Paint Inspection – Cost of evaluating lead-based paint risk
- Loan Discount Points – Points are prepaid interest
- Origination Fee – Cost of the lender administrative costs
- Pest Inspection – Check for pests, specifically termites and termite damage in the home, required for some loans
- Rate Lock Fee – Some lenders charge a fee to lock to rate between preapproval and closing, usually 0.25% – 0.05%*
- Recording Fees – Local recording office to record the public land record
- Survey Fee – Verify all property lines and shared property items such as fences, etc.
- Title Company Title Search – Search of the property’s records to ensure no one else has a claim or lein on the property, make sure it is a clean title
- Transfer Taxes – Tax paid when the title passes from buyer to seller
- Underwriting Fee – Payment to lender to research if you are approved for your loan
- Lender Policy Title Insurance – Insurance to assure the lender you own the home
- Owner’s Policy Title Insurance – Insurance to protect you in case someone challenges your ownership of the home
Escrow Fees
- Escrow Deposit for Property Taxes & Mortgage Insurance – Amount of property tax and mortgage insurance you are asked to put down at closing
Prepaid Fees
- FHA Up-Front Mortgage Insurance Premium (Only for FHA loans) – Required Payment of 1.75%* of the base loan amount upfront, however, this can be rolled into the cost of the loan
- Homeowner’s and Flood Insurance –First year of insurance is often paid at closing
- Prepaid Interest – Sometimes lenders request you pay the interest between the closing and the first payment upfront
- Private Mortgage Insurance (PMI) – First month’s upfront, when the mortgage does not qualify for it to be waived, typically below a 20% down payment
- Property Tax – Taxes within 60 days of purchase
- VA Funding Fee (VA loans only) – A percentage of the loan that is assessed to fund the VA home loan program, it can be rolled into the cost of the loan
For sellers, these costs include, but are not limited to:
Closing Costs
- Attorney Fees – Attorney fee for the seller
- Credits towards closing costs – Agreement to offer the buyer some money to cover their portion of closing costs, or some portion of their closing costs
- HOA Fees – Ensure you are paid up on the HOA fees and typically a percentage of the current month’s dues up the close date.
- Prorated Property Taxes – Property taxes that accrued up to the date of sale
- Recording Fees and Transfer Taxes – Local recording office to record the public land record
- Real Estate Agent Commission – The commission for both the buyer and the seller, typically 5% that is split evenly.
Escrow Fees
- Escrow Fees – Typically the escrow fees are divided 50/50 by the buyer and the seller
Prepayments Fees
- Title Insurance – The title insurance premium, this provides protection for the length you own the home. (usually 0.5% -1% of the home value*)
Most costs are typically paid for mostly by the buyer. However, a buyer can try to avoid these upfront fees by trying to negotiate with the seller or finding the right lender. Some lenders offer deals that allow you to forgo closing costs and include it in your overall mortgage payment to pay back over time. This option will increase your monthly payment but allows you to keep some of your savings. Buyers can also try to negotiate with sellers to have them agree to pay some or all the closing fees.
Do you have any questions about applying for a mortgage? Let us know by sending an email to: media@alltrustcu.com!
*These numbers are used for illustrative purposes only, and in no way represent what a buyer will pay during closing. Contact a financial advisor for more information.