How Much Does it Cost to Buy a Home? Know Your Closing Costs.

How Much Does it Cost to Buy a Home? Know Your Closing Costs.

What are the costs to expect from going under agreement to signing the closing paperwork and having keys in your hand?

Home Inspection

The first cost we generally see prospective home buyers occur is the home inspection cost. Not all buyers do a home inspection and it is not required, but this is something that we highly recommend. The home inspection itself will cost around $500, however there are other inspections other than the traditional home inspection that a prospective home buyer may occur.

We have seen these other inspections (which cost additional money) include a Radon Inspection, Pest Inspection and Well Water Inspection.

Application Fee

The Application fee is a fee that is paid upfront when applying for a loan. This application fee is used to cover the cost for a 3^rd party independent appraisal of the property that the prospective buyer has an accepted contract on. This application fee is generally in the range of $500 to $700.

Title Insurance

There are two types of Title Insurance. There is lender’s title insurance and the homeowner’s title insurance. Title insurance is one of the most expensive parts of a home buyers closing costs. Title Insurance insures against financial loss from defects in title to reap property and from the invalidity or unenforceability of mortgage loans. This insurance will defend against a lawsuit attacking title or reimburse the insured for the actual monetary loss incurred up to the dollar amount of insurance provided by the policy.

The Lender’s Title Insurance is a requirement by the lender in order for them to give the mortgage. The Owner’s Title Insurance policy is optional to a homeowner. Like most insurance, it is a waste until the moment you need it! The owner’s policy is one that we highly recommend. The higher the purchase price of a house, the more the cost of the title insurance policy.

Home Owners Insurance

In order to close, a lender will require an insurance binder that shows that the property a homeowner is buying is insured for the next 12 months. The bank needs to ensure that the property they are lending against is insured. Starting on month one, the bank will start collecting a 1/12 of the insurance cost (it is included in your mortgage payment) per month and put that money in an escrow account to pay the insurance premium the next year.

Attorney Fees/Recording Fees

Attorney fees are a variable cost depending on the attorney.  When purchasing a home, many attorneys will give a prospective home buyer a discount on the costs of representing them in the sale and drafting a Purchase & Sale Agreement. On average we see these Attorney Fee cost range from $250 to $500 if they are also closing the loan for the bank.

The Recording fees range from $440 to $475. The $475 fee would include the recording of a Homestead which is also highly recommended for owner occupants.  

Buying Down the Rate – Paying “Points”

Buying down your rate is paying an up-front premium in order to lower the rate. We don’t see many people buying down their rate in low interest rate environments. When you buy a “point”, you are paying 1% of the new loan origination up front in order to reduce the interest rate.

Rule of Thumb

As a rule of thumb, a home buyer can estimate that closing costs are going to run about 1% of the purchase price of a property. As an example, if you were to purchase a $500,000 house, then a good rule of thumb is to expect around $5,000 in closing costs. These are estimates that could easily be more expensive depending on different loan types as well as different options the buyer chooses throughout the process.

Can You Wrap These Closing Costs into Your Mortgage?

No. You can’t just add your closing costs into the mortgage when purchasing a home (When refinancing you can). Something that we can do is ask a seller to pay a portion or all of the closing costs. We would need to ask for this at the time of the initial offer phase.

Seller assistance or Seller Concession/Credit for closing costs can be a little tricky. For example, you do not want to ask for a larger credit then you will use. Any money that a buyer does not use for their closing cost is given back to the seller. As an example, you would never want to ask for $10,000 in closing cost assistance when your closing costs are $6,000. In this example, the seller would get the $4,000 back which is really the equivalent of the home buyer just giving the home seller a nice additional $4,000 gift!

Here are some other articles that may prove helpful!
-        What Should a First Time Home Buyer Know? 
-        Is buying a condo different then buying a Single Family? 
-        How long does it take to buy a house? The Buyer timeline.
-        Simplicity of the Pre-Approval 
-        The Importance of getting pre-approved  

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