Closing Cost Fees
In the simplest all-cash purchase, the only fees are ESCROW ($150 + $1.50 per thousand), your first year’s FIRE INSURANCE ($400-800), 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 $600 for a $500,000 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.
One way around PMI is to use a Home Equity Line of Credit (HELOC) as a second trust deed. HELOCs usually have a variable interest rate, so be sure to discuss all the pros and cons of this strategy with your lender.
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 $300-$400, 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 purposes only.