by Sean Hess (Sean@StAugTeam.com), Broker and Manager for St. Augustine Team Realty (www.StAugustineTeamRealty.com). Join us on Facebook.
Even babies wonder what's up with closing costs.
How much does it really cost to buy a house? What are the closing costs on a home?
If you’re paying cash, it will probably be under $1000 and may only be a few hundred. If you’re getting a loan, well, that’s where the fun starts: it could be hefty.
If you’re getting a loan there will be fees from your lender. There will be an origination fee (typically) because this is the amount the lender gets paid for doing the work on your loan…this could be any amount. Seriously.
Here’s one I saw recently. The origination fee was $3000, but the bank is offered the buyers a deal: if the buyers took a higher interest rate they would cut the origination fee in half. So the origination fee dropped to $1500.
When you get a loan the bank orders an appraisal on the house. You pay for this. Most of the time you pay for this at the time you make your application, but it could be on your closing sheet. An appraisal will run from $400-$500. You also will pay for a credit check, which is around $50, and a tax service fee of around $75 (which helps determine the exact taxes owed on the home).
You may need a survey (upwards of $400), but sometimes the bank will accept the copy of an old survey. Whether you get a new survey or not you will need a flood elevation certificate for insurance purposes…I’ve been charged as much as $250 for one of these.
You need to pay your homeowners insurance for the first year at closing, plus (typically) an extra three months to start the escrow account that will pay for the insurance when its due again in a year. So this may be $600 or it may be $3000 depending on your house. If you have flood insurance, you will have to pay that too at closing.
You will need to pay the mortgage interest that’s due before you make your first actual payment on the loan. Figure a months worth of interest? A few hundred $? A few thousand? It’s based on the loan.
If you put down less than 20% down then you will probably pay something called mortgage insurance (MIP). This could be upwards of $1000 based on the amount of the loan. Like insurance you will have to start funding an escrow for this as well, for when it’s due the next year.
Property taxes. If it’s September, October or November (when taxes are due), you will pay the whole tax bill at closing. But you will get a credit from the seller for the portion of the year they lived in the home. So if the seller lived in the home 10 months, you will pay the whole tax bill, but you will get a money credit for 10 months and actually only pay for 2. If it’s early in the year you won’t pay the whole tax bill at closing…there will be enough in your escrow to pay them at the end of the year. But you will still need to pay at closing to start funding your escrow.
Title insurance. This is based on the price of the home. You will pay for a title insurance policy for your lender. This is called the Lender’s Policy. On a $200,000 home this will be over $1000. You will also pay for something called endorsements, also for your lender, which cover extra things not covered by normal title insurance (for example, title issues arising due to a previous owner making improvements that weren’t permitted). At the same time the seller will pay for a title policy for you (this is called an Owner’s Policy). But typically the seller will not pay for the same endorsements for the Owner’s Policy…you may want to pick these up yourself, they are worth it, and they are only a few hundred dollars.
Recording Taxes. Known as the doc stamps and intangible taxes, these are based on the value of the mortgage. The cost is $.35 per $100 dollars of value for doc stamps, and $.20 per $100 in value for the intangibles. On a $200,000 LOAN, the doc stamps would be $700 and the intangibles would be $400.
Additional Fees. If it’s a mobile home there will be a title transfer fee that could be $1000. Moving into a homeowner’s association or a condo? These fees can run anywhere between $75 and a few hundred $$. If the homeowner’s or condo fees have already been paid up by the seller, you will pay the seller back (as a closing credit to the seller) for the portion of the time that you will be living there until it is due again. If they haven’t been paid, you will pay your share.
There could be more I’m not thinking of. But these should be the fees in a nutshell.
It’s hard to get these fees altogether upfront. Why? Well it should be obvious. The lender is charging one group of fees. The state is charging another set. Your property tax credits will be based on the day of closing, which isn’t set yet. You may not know at the time of contract whether there is a HOA or condo transfer fee, or whether the fees are up to date or not…and it might take weeks to find out depending on how responsive the HOA/condo association is. You may not know if you need a survey yet, and you probably haven’t shopped for insurance yet, so you won’t know those costs yet. Depending on how the flood cert shakes out, you may need flood insurance. The title company may not know which endorsements the lender requires on their Lender’s Policy until a few days before closing.
What to do? Manage each section separately. And communicate, communicate, communicate with your Realtor, mortgage lender, and title company to get a handle on these costs as they evolve.
They will love you for it. Why? Because most buyers disappear between contract and closing, sometimes not even bothering to show up for the home inspection. Then they yell at closing because of the costs.
Don’t let that be you.
Many thanks to Stephen Collins of Land Title of America in St. Augustine for help sorting out these fees.
For a group of Realtors that will help steer you through the maze of buyer fees, contact St. Augustine Team or call (904) 386-8327!