What Will My Closing Costs Be?
In the simplest
all-cash purchase, the only fees are ESCROW ($150 + $1.50 per thousand),
your first year's FIRE INSURANCE ($250-$300), a fee to the County
to record the GRANT DEED ($40) and reimbursing PROPERTY TAXES the
seller has paid in advance.
For purchases involving a loan, a good rule of thumb
is 1 1/2% of the purchase price plus any points on the loan. Here's a breakdown
of the costs:
A TITLE INSURANCE policy will be required for the lender, figure
on $350 for a $200,000 purchase.
The are various LENDER FEES that go by various names such as
"Funding fee", "Document prep fee", "Origination fee", etc. Forget the names,
just ask the lender for the bottom line total, or a Good Faith Estimate.
POINTS may be charged on your loan if you are going
after a better interest rate.
If you have an IMPOUND ACCOUNT that allows the lender to pay
your taxes and fire insurance, the account will need some money to start
it off. This will vary depending on where we are in the tax year so that
TAXES can be paid.
If you purchased in a community with a HOMEOWNER'S FEE, these
would also be paid ahead of time.
The FIRST MONTH'S MORTGAGE PAYMENT is also made in escrow, or
at least a portion of a month. This is so your first payment is not a partial
payment which messes up the bank's bookkeeping. For example, if you close
March 15th, you will pay interest until March 31st in escrow. Your first
mortgage payment will be due May 1st which pays for April because mortgage
payments are always made in arrears.
If you purchase with less than 20% down, expect to pay PRIVATE MORTGAGE
INSURANCE, or PMI for short. The portion of the loan over 80%
loan to value is the riskiest part for the lender. With low-down government
loans like VA and FHA, the government insures this part for the lender. For
conventional loans, private insurance companies provide the same service,
for a fee. A typical charge is .5-.75% of the loan amount per year, so divide
by 12 to get the monthly figure. You start off the impound account with 2
months up-front, and then a monthly fee until the loan-to-value reaches 80%.
This can happen through appreciation, or from just paying down the mortgage
over time. You have to request the insurance be removed on your own when
you feel you have 20% equity. The insurance company is happy to collect from
you forever unless you challenge it.
pocket expenses will be an APPRAISAL FEE and a CREDIT REPORT
fee. Expect around $350 for these services that the mortgage broker will
need to provide for you prior to getting the loan.
Another out-of-pocket is the PHYSICAL INSPECTION. When you purchase
a resale home, you have the right to hire whatever professional inspectors
that you want to look the place over and give you recommendations. This will
run from $200-$300, but I always advise that you do it to avoid surprises
later. Also, the inspection report gives us third-party documentation when
we ask the seller for repairs.
The numbers used in this article are approximations, and used for educational