Looking for and buying a home is exciting, but it can also be confusing. If you’re in the market for a new home, don’t forget to budget for closing costs! Closing costs include all fees and other charges incurred while officially transferring a property from one owner to another. Here’s all you need to know about closing costs:
How high will my closing costs be?
Closing costs usually amount to 2-5 percent of the home’s price. For example, if you’re purchasing a $130,000 home, your closing costs can be anywhere from $2,600 to $6,500.
What kind of charges can I expect as part of my closing costs?
- Application fee: Will cover all administrative work required to process your application for a home loan.
- Appraisal: This fee covers the fee of a professional appraiser to provide your lender with an estimate of your home’s actual value.
- Attorney fee: In some states, the closing documents must be reviewed by an attorney before they become binding. This charge covers the attorney’s fee.
- Closing fee or escrow fee: This fee is the cost of the title company, escrow company, or attorney for facilitating the closing.
- Credit check: Some lenders charge a fee to examine your credit history.
- Escrow deposit: You may have to make your initial escrow deposit at closing, covering the first two months of property taxes and mortgage insurance payments.
- Home inspection: The buyer usually covers the cost of a professional inspection of your entire home and property.
- Homeowner’s insurance: Many lenders require you to pay the first year’s worth of homeowners’ insurance premiums at the closing.
- Lender’s policy title insurance: This insurance assures the lender that you own the home, and the lender’s mortgage is valid.
- Origination fee: This helps compensate workers involved in marketing for the loan company and those who will help you with the borrowing process.
- Prepaid interest: Most lenders require buyers to prepay the interest that will accrue from the day of closing until the date of the first mortgage payment.
- Primary Mortgage Insurance (PMI): If you need to pay PMI on your loan, the first month’s premium is due at closing.
- Title fees: This includes the cost of a title search. Because your lender hires a title company to look for possible legal claims on your property.
- Underwriting fee: This fee goes directly to your lender. It covers the cost of researching whether you can obtain the home loan.
Should I choose the “no-closing-costs” option?
Before signing up for a no-closing-cost loan, it’s essential to understand that there’s no such thing as a mortgage without closing costs. In a no-closing-costs loan, these fees increase the mortgage. You’ll be paying interest on your closing costs throughout the life of the loan. Also, lenders usually raise the interest rates on no-closing-costs mortgages.
This list is pretty comprehensive, but keep in mind that every lender is different. Here at Elevate Credit Union, fees are kept low making it easier for you to get into your home. We have options for every situation. We also offer free budget counseling to help you and competitive mortgage rates. Give us a call and let’s discuss your options today.
