By Keith Loria
Purchasing a home is an expensive proposition, but for many buyers, the realization that a host of closing costs need to be paid before the sale can go through is often a concern when it comes to ensuring there’s enough money set aside to go through with the transaction.
In simple terms, closing costs are the fees associated with the acquisition of one’s new home that have nothing to do with the final sale price. These costs are in addition to the actual purchase price and include everything from legal fees to land transfer taxes to moving expenses.
To ensure no financial surprises pop up when it’s time to buy your home, here are some of the most common closing costs that need to be considered.
1. Legal Fees. A real estate lawyer will be needed to assist you in drafting the deed, preparing the mortgage and conducting various searches related to the property. While the cost of a lawyer varies, you can expect to pay at least $1,000 for their services.
2. Title Insurance. Almost all lenders require that a homebuyer purchase title insurance to protect against losses in the event of a property/ownership dispute. Title insurance is basically an insurance policy that protects the homeowner from problems related to the title to their home, such as title fraud, undischarged liens, zoning issues and survey problems. Homebuyers can expect to pay between $150 – $400 for title insurance at closing.
3. Interest Adjustments. Unless you’re purchasing a home on the first of the month, odds are your mortgage payment won’t be due until the following month. However, you’ll still be required to pay interest on the mortgage up to the first theoretical payment date at closing. It’s important to ask your mortgage lender how your IAD (interest adjustment date) is calculated so you’re prepared for this closing cost.
4. Prepaid Utilities Adjustments. A buyer must also reimburse the previous owner for any utility payments they may have already paid for the upcoming year. While this means you won’t have to pay for these utilities yourself for a while, it’ll add to the closing cost pile and can run hundreds of dollars.
5. Property Appraisal. Some lenders require an independent appraisal be done before the final papers are signed, and this is usually paid as part of the closing documents. This is necessary because the lender wants to ensure that the property is valued correctly. Most appraisals generally run $150 to $350, but the location of the property will play a role in the final price.
6. Property Survey. A land or property survey is a legally written and/or mapped description of the location and dimensions of the land that you’re acquiring. This is another requirement of a lender and is necessary for any transfer of ownership. A property survey will reflect all dimensions of the house and include anything that was added since the house was originally built, such as a new addition, deck, fence or pool. It can also point out any encroachments, such as a neighbor’s fence. This will generally run somewhere between $500 and $1,000.
7. Down Payment. The most important closing cost of all, the down payment can be anything you’ve negotiated with the seller and your mortgage lender, but typically falls around 20 percent of the purchase price. If you’re selling a home as well, and the deal hasn’t been finalized, you may need to acquire bridge financing. This will cover the cost of the down payment for a short period of time, with only interest to be paid at closing. Otherwise, prepare to buy your new home with whatever money you’ve been saving.
For more information about closing costs, contact our office today.