Closing costs. They're the hidden fees that can sneak up on you like a ninja in the night, ready to karate chop your wallet when you least expect it. But here's the thing: closing costs don't have to be a mystery. In fact, understanding them can be the difference between a smooth home-buying experience and a total nightmare.
Real estate can be a lot to handle, and I totally get that. I've been through it myself and spent years figuring out all the details about closing costs. Now, I'm here to pass on what I've learned.
So, whether you're a first-time homebuyer or a seasoned pro, buckle up and get ready to demystify the world of closing costs. Trust me, your wallet will thank you later.
MortgageWorks offers financing for new home purchases, refinance, home equity, investment property, construction, and a wide variety of loan program options to fit your every need. Servicing California and the entire Coachella Valley, including Palm Springs, Cathedral City, Rancho Mirage, Indian Wells, Palm Desert, Desert Hot Springs, La Quinta, Indio and Coachella. Call Art today @ (760) 883-5700
When you buy a home, you'll encounter closing costs—fees and expenses that can add up quickly. Knowing what these are and when they're due helps you plan your budget better for the whole process.
Closing costs are all the fees and expenses associated with purchasing a property. They're paid by either the buyer or seller during the closing process, which is when the property officially changes hands. These costs can include things like:
Origination fees
Appraisal fees
Title insurance
Attorney fees
Property taxes
Remember that closing costs are an additional expense in addition to your down payment and mortgage. Make sure to include them in your budget when buying a home.
There are two main types of closing costs: non-recurring (one-time) fees and recurring (ongoing) fees. Non-recurring closing costs are paid just once at closing. These include things like the origination fee, appraisal fee, and attorney fees. On the other hand, recurring closing costs are ongoing expenses such as property taxes, homeowners insurance premiums, and homeowners association (HOA) fees. You'll pay these either monthly, quarterly, or yearly for as long as you own the home.
Most closing costs are due on closing day when you sign all the paperwork to finalize the sale. However, some closing costs, like the appraisal and credit check fees, are paid earlier in the process. Your lender will provide you with a detailed breakdown of what's due and when. It's important to note that closing costs can vary significantly depending on your location, the price of the home, and the type of mortgage you obtain. On average, buyers pay 2-5% of the purchase price in closing costs. So, on a $300,000 home, you could be looking at $6,000 to $15,000 in addition to your down payment.
Now that you have a grasp on closing costs let's break down some of the typical fees you'll spot on your closing disclosure.
The origination fee is charged by your lender for processing your loan application. It's usually about 0.5% to 1% of the loan amount. So, if you're borrowing $250,000, expect to pay around $1,250 to $2,500 for the origination fee. It's one of the more expensive closing costs.
Before approving your mortgage, your lender will order an appraisal to ensure the home is worth what you're paying for it. An appraiser will assess the property and provide an estimate of its value. The appraisal fee covers the cost of this service and typically ranges between $300 and $500 but can be higher for larger or more unique properties.
Title insurance shields you and your lender from potential problems with the property title, like unpaid taxes or disputes over ownership. There are two main types of policies to consider:
Lender's policy: Required by most mortgage lenders to protect the lender's interest in the property.
Owner's policy: Optional but recommended to protect your interest as the homeowner.
The cost of title insurance varies by state and the price of your home, but expect to pay around 0.5% to 1% of the purchase price.
In some states, an attorney must be present at closing. Even if it's not mandatory, many buyers and sellers choose to hire a real estate attorney to review the contracts and ensure everything is in order. Attorney fees can range from a few hundred to a couple thousand dollars, depending on the complexity of the transaction and your location.
As a homeowner, you'll be responsible for paying property taxes to your local government. These taxes fund things like schools, roads, and public services. The amount you'll owe in property taxes depends on the assessed value of your home and the tax rate in your area, which can usually be found on your local assessor's website. At closing, you'll likely have to pay a prorated portion of the property taxes based on when you're closing and when the taxes are due. Your lender will also set up an escrow account to collect a portion of your property taxes each month, so you don't have to come up with the full amount all at once.
Real estate agent commissions are a closing cost that often surprises buyers. Although the seller usually pays these fees, they can still impact your bottom line.
In most transactions, the seller pays a commission to both their agent and the buyer's agent. The total commission is typically 5-6% of the sale price, split evenly between the two agents. So, on a $300,000 home, the total commission would be $15,000 to $18,000, paid by the seller out of their proceeds from the sale. While the buyer doesn't pay commission directly, it impacts the home's price, as sellers often factor in the cost of commissions when setting their list price.
Lately, real estate commissions are getting scrutinized quite a bit. Back in 2021, the National Association of Realtors (NAR) reached an agreement with the Justice Department due to alleged antitrust violations. As part of this deal, NAR had to revise its rules so buyers' agents can now publicly advertise different commission rates. This shift may lead to reduced closing costs for buyers because some agents might offer lower rates than usual ones after negotiation; however, it's too soon yet – most argue they're worth every penny charged. Have you discussed potential commission flexibility when talking things through with your realtor?
Key Takeaway:
Closing costs include fees like origination, appraisal, and title insurance. They usually range from 2-5% of the home price. Budgeting for these helps avoid surprises on closing day.
Both buyers and sellers have expenses to cover when it comes to closing costs. However, in most cases, the buyer pays the majority of the closing costs.
How much each side pays can vary depending on the location of the property, the purchase price, and the type of financing. Buyers typically pay most closing costs, but sellers may agree to cover certain expenses based on negotiations or market conditions.
As a buyer, you can expect to pay for things like the origination fee, appraisal fee, title insurance, and title search fee. These are all part of the closing costs you'll need to budget for.
You'll also be on the hook for prepaid homeowners insurance premiums, mortgage insurance premiums, property taxes, and HOA fees. These costs are typically prorated based on the closing day.
While sellers generally pay fewer closing costs than buyers, they're still responsible for significant expenses- real estate agent commissions. In most cases, the seller pays the commissions for both their agent and the buyer's agent.
Sellers may also need to pay transfer taxes, which some states impose when a property changes hands. The exact amount varies widely depending on the location.
During negotiations, sellers sometimes agree to cover part of the buyer's closing costs. This practice called a seller concession, can make the deal more attractive and help it go through smoothly.
Closing costs can add up quickly, but there are ways to minimize them. With a little strategizing and savvy shopping, you can shave off a significant chunk of change.
Don't hesitate to chat with your lender about fees like the origination fee or discount points. They might be open to lowering or even dropping some of these costs if you have a good credit score.
Remember to check for unique deals or discount programs. For instance, some banks offer reduced closing costs for people buying their first home and loyal clients who bank with them regularly.
Comparing fees from different third-party service providers can reduce closing costs. Title insurance companies, attorneys, and other professionals often charge very different rates.
Get quotes from multiple providers and compare them carefully to ensure accuracy. Just be sure to consider the quality of service and not just the price tag. The cheapest option isn't always the best choice.
Don't hesitate to ask your real estate agent for advice. They usually know several local companies with fair prices and solid track records so that they can guide you in the right direction.
Key Takeaway:
Buyers usually pay most closing costs, like origination and appraisal fees. Sellers often cover agent commissions and transfer taxes.
Closing costs can be a real pain in the you-know-what. But by understanding what they are, how they work, and who pays for what, you can save yourself a whole lot of headaches (and maybe even some cash) in the long run.
Being informed about closing costs gives you an edge when buying a house. You're now equipped with the details needed to move forward and achieve your goal of owning a home.
So go forth, my friend, and conquer the world of real estate with confidence. And if anyone tries to pull a fast one on you with hidden fees, just give 'em a knowing wink and say, "Nice try, but I know all about closing costs."
MortgageWorks offers financing for new home purchases, refinance, home equity, investment property, construction, and a wide variety of loan program options to fit your every need. Servicing California and the entire Coachella Valley, including Palm Springs, Cathedral City, Rancho Mirage, Indian Wells, Palm Desert, Desert Hot Springs, La Quinta, Indio and Coachella. Call Art today @ (760) 883-5700
We've been helping customers afford the home of their dreams for many years and we love what we do.
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www.nmlsconsumeraccess.org
777 E. Tahquitz Canyon Way, Suite 200-47
Palm Springs, CA 92262
Phone: 760-969-5023
Fax: 760-969-5024
art@mwloan.com
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