Costs to Expect When Closing on Your Home
Prepare for Closing.
What are Closing Costs?
When you buy a house, there’s a lot more involved than just the price of the home to factor in. Closing costs are the other fees that are involved in the home buying process, and are payed at closing (when you finalize the sale and transfer ownership). All in all closing costs add up to about 2-5% of the purchase price.
The most common closing costs encountered are:
Loan Fees
Loan Origination Fees:
Buyer pays
In order to go through the whole process of getting a loan, your loan officer has to determine what you’re qualified for, what rates to lend at, how dependable you are, etc. To do all this work, they charge you a fee.
You can and should shop around to different lenders for the best rates, but you can negotiate fees as well.
This fee is usually ~1% of the loan value.
Discount points
Negotiated- typically the buyer pays these, but the seller may offer to pay for points as an incentive.
To get a lower interest rate you can usually pay “points” toward your loan. This is a lump sum you pay now (at closing) in exchange for lower monthly payments over the life of the loan. This is optional, not required.
PMI/ MIP
PMI= Private Mortgage Insurance (this is for a conventional loan)
MIP= Mortgage Insurance for FHA loans
Paid by the Buyer This gives the lender insurance in case you stop making payments. If you aren’t putting 20% down on your loan, you’re considered more risky and as a result have to pay for extra insurance for your lender.
This is a fee you’d pay monthly until your loan is less than 80% of the home’s value. But good news, this can be adjusted as your home value goes up! So you may get out of these payments early if your house gains value quickly or you may extra payments on the principle.
Survey/Credit Report
Buyer pays
The lender will require these before giving you their money $$$. The survey evaluates the land the house is on and the credit report says you’re not a sketchy buyer and can pay your loan regularly.
Hired Professional Fees
Realtor commissions
Generally paid by the seller, but should be discussed with your realtor when signing a sellers/buyer’s agency agreement.
This is the commission paid to both the listing broker (seller’s agent), and the selling broker (buyer’s agent)
Attorney Fees
Paid by whomever hired them (each party can have one, or neither party)
Real estate brokers can’t weigh in on legal matters. We can only use commission approved forms and language drafted by an attorney (refer to Colorado Commission Rule F & Conway- Bogue).
Hiring a real estate lawyer can be beneficial in a lot of situations, like when arranging a lease option, if there is a complication with title or if you’re purchasing commercial real estate.
Closing Agent
This person is in charge of the closing process, including making sure each party gets/gives the correct amount of money.
Often times a closing agent will be hired to make sure all the paperwork and required information is correct and to facilitate payments.
They usually work for the title company.
House Related Fees
Appraisal fee
Paid by the Buyer (usually)
The mortgage company will select and hire the appraiser, as they want to make sure the home they receive the mortgage for is worth the money they’ve lent.
~$600
Doc Fee
Paid by the Buyer This documents that the buyer owns the property with the state government. It’s paid to the county clerk.
$=Purchase Price*0.0001
Title Insurance (Owner’s Policy)
Chosen and paid for by Seller
The seller has to provide proof that they own the home, with no liens on the property. This is generally done by attaining title insurance, whereby a title company does all the legal research to say whether the seller does in fact own the property and have the right to sell it (and the seller pays for the policy).
Ask about extended coverage- this covers against additional risks and is often not very expensive.
~$800
Title Insurance (Lender's Policy)
Paid by Buyer
Basically the same as above, but this insures the lender instead of the Buyer. As the Buyer is taking out the loan this is theirs to pay.
Usually a discount if you use the same company the seller used (they’ve already done the work!)
Sewer Scope
Paid by buyer
This is basically a video of the sewer lines that will show any issues (holes, blockages, material type, etc.)
Your sewer is incredibly important to your home, and if it breaks it’s incredibly costly to fix. This is especially true if the sewer lines run under city streets/are hard to get to.
A sewer scope is an important because while the scope only costs around $150
This is especially important for older homes.
This could be paid at the time of the scope or at closing.
HOA Transfer Fees
HOA’s charge a fee to transfer documents between the seller and buyer
In addition to all these, taxes and fees like electricity and water are accounted for and pro-rated during closing.
This is a lot! But don't worry, you should get a copy of everything before closing and your realtor will be happy to go through it all with you :) If you have any questions send me an email!