Closing Costs: What to Expect and What to Watch Out For
Mortgage Advisor Christian Alvarez explains what costs borrower’s can expect to pay when they close on a home loan.
“Closing” your home refers to a time period during a purchase transaction, where the contract is executed and the conveyance of title is given to the buyer from the seller. For the buyer, this is a great point in time during the transaction, especially since it indicates that he or she is in the final stages of purchasing a property. Please continue reading below…
Closing costs are costs associated with a purchase transaction and are paid at closing. These costs can be paid by either the buyer or the seller, and are in addition to the sales price of the home. Half of the time, closing costs are paid by the consumer (a.k.a the Buyer), while the other half of the time, they’re paid by the seller; in which case you will get whats called a Seller’s Contribution and the seller will pay 100% of the fees.
- Real Estate Broker Fees
- Recording/Government Filing Fees
- Lender Fees
- Appraisal Fee
- Escrows/Impounds/Reserves
- Title and Closing Charges
The two fees that vary the most are Title and Escrow. The title company is going to give you what is called a Fee Sheet, and the Fee Sheet depends on the loan amount and the sales price. The higher the sales price is, the higher the loan amount will be, and the higher the cost the borrower will ultimately incur. You should expect your mortgage advisor to go line item per line item, and itemize each one of the costs so you understand clearly what each fee is being paid for and the amount that it’s for.
If we were to break down closing costs into two categories, we would find that there are Recurring and Non-recurring closing costs. Recurring closing costs are costs that recur throughout the life of the loan. These include property taxes, insurance, mortgage insurance. On the other hand, Non-recurring closing costs are costs associated with a purchase transaction that only occur at the sale. Examples include third party fees such as title, escrow, and lender costs (processing and underwriting).
For a cookie cutter deal – lets say a conventional loan at $400,000 – you can safely expect to pay anywhere between 2-2.5% of the sales price in total closing cost fees. This includes all third party fees and lender fees.
One thing that you should remember when you’re getting a quote for closing costs, is that there are recurring costs that most mortgage advisors will not include in their quote. These include your property taxes, insurance, mortgage insurance and prorated interest. Every loan has closing costs, so if there are any other questions feel free to contact me or any of our other mortgage advisors and we’ll be more than happy to help you.
