What are Closing Costs?

 

When preparing to buy a home, it’s important to understand and plan for the closing costs that you will eventually need to pay. Closing costs are the fees and expenses you pay when closing on your house, beyond the down payment. These costs are paid at the time of closing, which is the point in time when the title of the property is transferred to you, the buyer. It is important to check with the title escrow company ahead of time to determine how the funds should be sent.  Most title companies require that you send funds via wire or bank certified cashier’s check.

 

Closing costs vary greatly depending on where you live, the property you buy, and the type of loan that you choose. Closing costs are generally made up of 3 categories: (1) lender or loan charges; (2) title and government transfer/recordation fees; and (3) miscellaneous costs. 

 

1. Lender or Loan Costs

When you obtain a mortgage loan for your new home, you may be charged lender or loan. Your lender is required to outline your closing costs in the Loan Estimate you receive when you first apply for the loan and in the Closing Disclosure document you receive in the days before the settlement. Closing costs associated with your loan include:

• Appraisal/Administration Fees: The evaluation of the appraised value of the property, underwriting, credit report fee and processing charges. 

• Prepaid Interest: Buyers will be charged at closing the interest that accrues on your loan from the date of closing until the first monthly mortgage payment.

• Loan Origination Fee: This fee may be paid to lower the interest rate or process the loan and is a percentage of the loan amount. It may vary from 0.25% to 1% of the loan amount.

• Pre-Paids and Escrow Set up:  The annual premium for your homeowner’s insurance and property taxes to set up the escrow for the lender to make these payments on your behalf.

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 2. Title and Government Transfer/Recordation Fees

At the time of closing, the property’s title is transferred from the sellers to the new homeowners by a title insurance escrow company. This title transfer requires recordation and transfer tax fees specific to the State and County where the property is located. Title and government transfer fees generally include:

• Title Search Fee: A full search of the public land records and court dockets to ensure that the person selling the house actually owns it; that there are no outstanding claims or liens against the property, and all taxes, or condo/HOA dues are paid in full.

• Lender’s Title Insurance: Most lenders require a loan policy, which protects them in case of an error in the title search or claim on title.

• Owner’s Title Insurance: this coverage protects a new homeowner in the event any title problems or claims are made on your home after closing. To learn more about why title insurance is important, click here.

• Recording and Transfer Fees: The State and County your property is located in records the details of the transaction, which solidifies the new homeowner’s legal ownership of the property. These fees are determined by the State and County that your property is located in and is generally based on the consideration, or sales price.

 

 3. Miscellaneous Costs

With every home closing, there are various miscellaneous fees that the homebuyer should expect to pay. These fees include real estate broker fee, survey, home warranty and HOA or condo transfer charges. 

 

How Do I Calculate My Closing Costs?

 

To calculate your expected closing costs, we recommend that you use our free closing cost calculator.  If you would like to calculate your closing costs manually, use this information:

 

Home Buyers

 

If you are buying a home and want to calculate the amount expected for closing, you will need four pieces of information

1. The home price

2. Your earnest money deposit

3. Any home credits

4. Your loan amount

5. Closings costs

 

To find the amount for closing, use our closing costs calculator, or use this equation:

 

             Sales Price + closing costs

   -    (loan amount + earnest money deposit + seller or agent credits)

  =   Amount Due at the time of closing

 

Home Sellers

 

If you are selling your home and want to calculate your expected net proceeds, you typically need two pieces of information:

1. The sales price of your home

2. Closing costs such as mortgage payoff, real estate broker commission, government transfer/recordation taxes and title fees. 

 

To find your total closing costs, use our closing costs calculator, or use this equation:

 

      Sales Price -  closing costs = Net Proceeds

 

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RSI Title is committed to protecting and defending the title of your home. Whether you are the buyer, seller or refinancing your mortgage, contact us for a title fee quote or free consultation on your next real estate transaction. If you have any questions, feel free to contact us!