A Guide to Closing Costs for First Time Home Buyers
Many first-time home buyers are unaware of the closing costs associated with getting a home loan, or they are worried about what those closing costs might be.
How much will closing costs add up to? Will they tack thousands upon thousands on the bottom line? Just what exactly are those costs for?
With such an important and expensive purchase, this apprehension is expected.
But in reality? Closing costs are only about 1 percent of the price. On a $200,000 loan, that’s a mere blip on the radar.
Are you worried about closing costs on your first home? This guide can help clear the air.
Potential Closing Costs You May Owe
In general, closing costs are only a small percentage of the total purchase price of your home. The exact fee for each individual line item will vary from lender to lender (and state to state), but you can expect to pay most to all of these costs in some form or capacity come closing day:
Appraisal fee – The lender will want an appraisal to make sure the home’s value is in line with the loan they’re giving you. They want to make sure it’s a good investment.
Credit reporting costs – Your lender will pull your credit report to gauge your financial health and credit history. This report will factor largely into the interest rate your lender gives you.
Title search – This is to make sure no one else holds the deed or title to the property you are trying to buy.
Closing/escrow fee – The closing fee goes to the title company that is handling your closing.
Title insurance – This fee protects you and your lender in the event a problem with the title arises.
Courier fee – If documents need to be transported between offices or locations, you may be charged a courier fee.
Escrow deposit – This will go toward outstanding property insurance and taxes. May be at least two months of these payments.
Title transfer taxes – These are transaction fees dictated by the government.
Recording, underwriting, origination and processing fees – These varied feeds go toward recording the new title, processing your application and researching your creditworthiness.
Property taxes – Depending on the time of year and the amount paid by the home’s previous owner, you may owe property taxes to the local county come closing day.
MIP payment – If you have an FHA loan, you’ll likely be required to pay a small percentage of your Mortgage Insurance Premium up front. In most cases, you can roll this cost into your total loan if you’d rather.
Flood determination – If there’s a chance your property is located in a flood zone, you’ll need to cover the costs of a third-party verification of that. If it is, indeed, in a flood zone, you’ll be need to buy flood insurance before purchasing your home.
HOA transfer fees – In the event your property is located in an area with a Home Owners Association, you’ll need to pay the transfer fees and outstanding dues associated with that HOA.
Homeowners’ insurance – In some cases, you may need to pay your first year of home insurance at closing.
Loan discount points – This is essentially pre-paid interest, which can help you lower your monthly payments over the course of your loan.
Your lender will provide you with a closing disclosure that breaks down all of these fees, as well as an estimated amount for how much you’ll be charged for each.
If you’re getting close to your closing date and have yet to receive one, be sure to contact your mortgage advisor and request one. Ask any questions you may have about the fees now — before closing day rolls around. Waiting until the last minute to address any concerns could delay your closing and the day you get your keys.
Remember, time is of the essence in real estate. Respond promptly when your lender requests information, and stay in touch throughout the process to ensure things stay on track. This will give you a smooth, efficient and, ideally, speedy closing in the end.
Have more closing cost-related questions? Contact the SnapFi team today.