When it comes to saving money to buy or refinance a home, many people primarily focus on the down payment. However, the cost of buying a property goes beyond the simple task of paying the price negotiated between the broker and buyer. In addition to the initial down payment, there are also closing costs involved, which need to be anticipated in your savings. Understanding what closing costs are, how much they are on average, and what’s included can help eliminate any unexpected financial obstacles when you close on your new home. Listed below are some of the common fees included in a typical settlement, which will comprise your closing costs, but don’t worry your friends Mike and Justin are here to help!
Title & Escrow Related Closing Costs:
Escrow fees are paid to the title company or the escrow company directly so they can set up escrow for your hard-earned money. These various fees cover the paperwork (which includes recording the deed) and the exchange of funds.
Escrow fees can vary from state to state just as can the rules on which parties are responsible for paying. There are specific costs typically held in escrow, including:
- Real estate fees
- Notary Fees
- Loan fees
- Third-party payments
- Insurance Policy Coverage (for both the owner and lender)
Utilizing escrow as a hold for these costs is similar to using a savings account to prevent yourself from spending money. Escrow fees aren’t the only closing costs you’ll need to pay, so be sure you take into consideration and understand what other expenses are required before you can move into your new home.
Loan Related Closing Costs:
Like many others who are researching the loan process, you will likely come across the term “loan origination fee.” This financial term is relatively straightforward: It is a fee that a lender imposes to account for specific processing expenses related to providing a loan. In closing, origination fees can be more complex as they can vary from lender to lender and are subject to certain rules and regulations. It is best to thoroughly research how origination fees work and how they will affect your loan. In addition to the Loan Origination Fee, there are a few other key loan related costs involved, such as:
- Loan Discount Points (optional)
- Appraisal Fee
- Credit Report Fee
- Interest Payment
- Underwriting Fee
Ask your lender how they apply fees and what payment options are available to you. With preparation, the proper tools, and the right lender, you can be confident that there will be no surprise loan related costs in closing.
Government Related Closing Costs:
Similar to the title and escrow closing costs, the Government-Related Closing costs are about the county, city, and state. As mentioned prior, there is a fee to record the deed, mortgage, and any other releases. Per the county and possibly city, there are transfer taxes which are any type of tax charged when the title of a property changes hands. For types of property that require a legal title (like real estate, bonds, or stocks) there is usually a surcharge by the state or local government to process the change.
Escrow Impound Account:
An impound account (also called an escrow account, depending on where you live) is simply an account maintained by the mortgage company to collect insurance and tax payments that are necessary for you to keep your home but are not technically part of the mortgage.
- Homeowner’s Insurance premium for the year
- Mortgage Insurance (if any) – the number of months varies
- Property Taxes – usually 2 months in advance
Tip: If your loan doesn’t include an escrow account, you will have to plan to pay these large expenses yourself. Be sure you budget for these extra costs and stay current on your taxes and insurance payments. If you fail to pay your property taxes, your state or local government may impose fines and penalties or place a tax lien on your home. You could also face foreclosure.
Of course, everything listed above is pretty standard, however, there can also be Additional Settlement Fees which may include:
- HOA Documents
- Termite Inspection
- Home Inspection
- Land surveys
- Flood certification
- Lead-paint Inspection
- Roof Inspection
- …and more!
Check with your real estate agent in regards to these fees.
With the various fees and terminology involved in the closing process, it is easy to get lost in the paperwork. This is why Mike and Justin will be at your side every time you sign any of your escrow documents to explain and to make sure everything is correct and that you never pay for anything you are not supposed to do. All of the above fees will be reflected on the HUD-1 Settlement Statement during the signing. Ask Mike or Justin if you have any questions regarding the fees disclosed! For clarification on the above points, please ask your lender or broker as these are just key takeaways and can vary per situation.