The costs of buying a home not only include the purchase price, but you will have closing costs as well. Although each buyer’s situation is unique, below is an explanation of the cost you may incur to purchase a home.
Buyer’s Costs Payable Before Closing
1) Earnest money – Generally 1%-3% of the purchase price. Earnest money is similar to a rental deposit and it gives assurance to the seller that you don’t back-out of the transaction without a contractual exit. Earnest money is paid when an offer is mutually accepted and will be credited to pay the closing costs and down payment when the transaction closes.
2) Inspection Fee – The buyer should have a professional inspector inspect the house prior to purchase. The cost generally ranges from $300 - $400. The inspection is usually completed shortly after mutual acceptance.
Buyer’s Costs Payable At Closing (CLOSING COSTS)
3) Lender’s Fees – You will receive a Good Faith Estimate of all fees from your lender prior to finalizing the loan.
a. Appraisal -This is generally $400 - $500 and the appraisal’s purpose is solely so the lender is not lending you more money than the property is worth.
b. Lender’s Title Insurance Policy - The seller pays the one-time title insurance premium that covers you from the day you own the property until the day you sell it, but you must pay for the Lender’s title insurance (also a one-time premium).
c. Discount Points (1% of the loan amount). The more points you pay to the Lender at closing, the lower your interest rate will be. You may not need to pay any “Points”.
d. Loan Origination Fee or Underwriter’s Fee or Processing Fee
e. Other Misc. Fees: Application Fee, Credit Report Fee, Flood Determination Fee, etc.
4) “Pre-Paids” and Reserve Deposits
a. Property Taxes - You only pay the property tax from the day you own the property, however the lender will usually take a 6 month deposit of the property taxes.
b. Homeowner’s Insurance - You will need to pre-pay the entire year of Homeowner’s Insurance at closing.
c. Interest – Unless you close on the first of the month, the bank will charge you interest from the day of closing until the first of the month. Your first payment, however won’t be due until the following month. For example, you close on August 20 and you will “prepay” 11 days of interest, but your first payment will be due on October 1st, not September 1st.
5) Settlement or Closing Fee – This is the fee charged by the Escrow to coordinate the paperwork, arrange signing and closing. This fee is split evenly between buyer and seller. It is based on purchase price and will generally range from $400 - $1200 for the buyer.
6) Other Misc. Closing Fees - Recording Fee, Courier Fee, Wire Fee
7) Down Payment – Depending on the loan program you select, you will usually need anywhere from 3.5% to 20% of the purchase price as a down payment. (3% of 300,000 = $9000 and 20% of 300,000 = $60,000). The down payment will be paid at closing.