Show Me the Savings: Navigating Closing Costs with Ease

Closing costs are associated with every Real Estate transaction. These costs are an essential part of the homebuying process and can significantly impact your overall expenses. I’ll break down both non-recurring and recurring closing costs for you:

Non-Recurring Closing Costs:

These are one-time fees that you pay during the home purchase process. They include:

1. Appraisal Fee:
• Lenders require an appraisal1 to determine the home’s fair market value.
• The cost varies but typically falls within the range of $500 to $900, and is determined by the location and property value.
• Typically paid by the buyer.
2. Home Inspection Fee:
• An inspection assesses the home’s condition, identifying any issues.
• The fee varies based on the property’s size and location.
• Usually paid by the buyer.
3. Title Insurance:
• Protects against any title defects or ownership disputes.
• Both lender’s and owner’s title insurance may be required.
• Cost depends on the home’s value and location.
• Typically paid by the buyer.
4. Escrow or Closing Fee:
• Charged by the title company or escrow agent for handling the closing process.
• Fee is a function of the property value.
• Split between buyer and seller (varies by location).
5. Recording Fees:
• Paid to the county recorder’s office to record the deed and other documents.
• Usually a small fee (around $50 to $200).
• Typically paid by the buyer.
6. Transfer Taxes:
• State or local taxes on property transfers.
• Rates vary by location.
• Typically paid by the buyer.
7. Processing, Courier, and Notary Fees:
• Administrative fee to handle loan paperwork.
• Courier charges for various documents.
• Fee charged by the Notary Public which is required for certain recorded documents.
8. Discount Points and Origination Fees:
• Up-front fee to buy the interest rate down2 on a loan.

Recurring Closing Costs:

These are ongoing expenses related to homeownership:

1. Property Taxes:
• Paid annually or semi-annually, depending on location.
• The amount depends on the property’s assessed value and local tax rates.
• Can be escrowed3 (impounded) and paid through your mortgage.
2. Homeowners Insurance:
• Protects against property damage and liability.
• Premiums vary based on coverage and location.
• Usually prepaid for one year at the close of escrow.
• Can be escrowed3 (impounded) and paid through your mortgage.
3. Mortgage Insurance (if applicable):
• Required for certain loan types (e.g., FHA loans).
• Premiums depend on loan amount and down payment.
• Escrowed and paid through your mortgage.
4. Prepaid Interest:
• Covers interest from the closing date to the end of the month.
• Calculated based on your loan amount and interest rate.
• Paid at closing.
5. HOA Fees (if applicable):
• If the property is part of a homeowner’s association (HOA), you’ll pay monthly or annual fees.
• Varies widely based on the HOA’s rules and amenities.
• Paid directly by the homeowner.

Remember that closing costs can vary based on factors like location, loan type, purchase price, and negotiations. While various locations have standard practices of who pays for each service (buyer or seller), all those particulars can be negotiated. As a buyer, it’s crucial to budget for these costs in addition to your down payment. A fee sheet can be provided to you for any particular property value for the loan program you seek.

1. See Appraisal: What is it and how is it Calculated? (7/15/24)
2. See Mortgage 301: Mortgage Strategies (7/15/24)
3. Escrow accounts or impound accounts are synonymous terms and allow a mortgage holder to pay 1/12 of their annual property tax assessment and Homeowners insurance with each monthly payment. The loan servicer accumulates those funds and pays them when due. Some programs require impound accounts, and other programs allow you the flexibility to have them or not.