Buyers and sellers are required to pay closing costs when they come to the closing table to sign documents and give money for the sale or purchase of their new property. These are costs of verifying and administering ownership and financing for the property. These costs will be paid to the title company at the time of closing with a wire transfer or a cashier check. It’s important to understand what costs you may incur during the process of your real estate transaction. Velocity Lending is your local expert on helping you get the lowest costs associated with your home purchase.
Closing costs are going to be shown on the Loan Estimate as well as the Closing Disclosure. They’ll also be shown on your Settlement Statement that you get from the title company at closing. You will sign these documents at various times throughout the process of being under contract and at closing to acknowledge the costs and fees associated with the sale or purchase of your property.
The buyer tends to have a larger list of things that they pay for at closing, whereas sellers only pay for a couple things. The seller is going to be responsible for paying prorated taxes for the time they spent owning property for the year, and a lot of times, they will pay the transfer taxes and the real estate commissions. Buyers have a long list of things they will pay for at closing. Some of these costs can be rolled into the loan amount but it will increase the total loan amount and you will end up paying more interest on the life of the loan. For financing, FHA loans will have a 1.75% upfront premium payment, USDA loans will have a 1% upfront guarantee fee, and VA loans will have between 1.25-3.3% guarantee fee. These fees are going to be a percentage of the loan amount and will be paid to the corresponding entity. Buyers are also responsible for paying an appraisal fee, inspection fee, recording fee, underwriting fee, credit report fee, title fee, flood certification fee, property taxes, title insurance, homeowner’s insurance, home warranty, and prepaid interest. They may pay for discount points and a mortgage insurance premium as well. On the next section, we will go more into detail on each of those fees.
Appraisal Fee: This is a fee that goes to the appraiser. They are hired by the lender to verify that the subject property is worth less than what they are lending on the transaction. This fee will be around $600 but could be more depending on the property.
Credit Report Fee: This is a fee that goes to the broker for the cost of running a credit report. This fee is typically about $40.
Discount Points: Borrowers can buy down their rate by prepaying a portion of the interest at closing. For every 1% of interest that borrowers prepay, their interest rate will decrease by .25%.
Escrowed Property Taxes: This is a lump sum that will be paid into an escrow account for property taxes to be taken out twice a year. Generally, 6 months will be paid into the escrow account at closing.
FHA Upfront Premium Payment: The Federal Housing Administration charges 1.75% of the loan amount at closing.
Flood Certification Fee: This is a fee paid to certify that the subject property is not in a flood zone.
Home Warranty Charge: This is a charge for home warranty insurance, which covers unexpected failures to major systems and appliances. This is optional and not always selected. It is going to be about $500.
Inspection Fee: This fee is paid to a home inspector who will check the state of the property. This is going to be about $300.
Mortgage Insurance Premium: If the down payment on the home is less than 20% of the purchase price, mortgage insurance will be required to be paid at closing.
Prepaid Interest Charge: Prepaid interest is the amount the borrower will pay at closing to pay the loan up through the first payment, which will fall on the first of the following month.
Prorated Property Taxes: The seller will pay taxes at closing for the time they spent in the property for that portion of the tax year.
Real Estate Commission Fees: The seller typically pays both the buyer and seller’s real estate commission fees. These can range from a total of 3%of the purchase price up to 6% or more.
Recording Fee: This fee is paid to the county recorder to record a new deed with the change of ownership at the sale. This will be about $20.
Stamp / Transfer Tax: This is a fee paid to transfer ownership of the property. This fee is 0.02% of the purchase amount.
Title Fee: This is a fee paid to the title company for the research they execute on the property’s title and deed. These will be in the range of 0.19% of the purchase price.
Title Insurance: This protects the buyers if there are any problems with the title before or after closing. This will be between 0.5 and 1% of the home price.
Underwriting Fee: This is a fee paid to the underwriter on the lender’s team to verify and research the approval for the home financing. This can be anywhere between $400-$900.
USDA Upfront Guarantee Fee: The U.S Department of Agriculture charges 1% of the loan amount for USDA loans.
VA Guarantee Fee: The Veteran’s Administration charges a fee of 1.25-3% of the loan amount for VA loans.
There happen to be a big handful of costs that come along with real estate transactions. It’s important to understand what these costs are and who they are paid to. Velocity Lending is your local expert mortgage broker who is here to help you understand the costs of your home financing and get you the lowest fees and rates. Call us today if you have any questions, comments, or need to get preapproved for a home loan!