If you’re researching the finances of buying your first home, the term “closing costs” likely keeps popping up. Closing costs are the charges and fees related to buying a house in your state and county and getting a home loan.
It’s a vague term, we know. So let’s break it down and look at what you can expect to pay when buying a home.
What “Closing” on Your Home Sale Means
Closing or “going to settlement” is the end of the home-buying process. That’s the day money changes hands to complete the sales transaction.
When you start the home loan process, the lender is required, by law, to give you a Loan Estimate of your closing costs. Because many factors impact the loan process, fees may vary slightly between the estimate and time of settlement. Close to your settlement date you’ll find out exactly how much you owe in a Closing Disclosure statement, so that you can be prepared.
Part 1: Fees Associated with Getting a Loan
The loan you apply for carries various fees depending on the type of loan, and usually includes an application fee whether it’s a conventional home loan, FHA, or VA (Note: Capital Bank waives its application fee for VA loans.) Fees vary among lenders across the U.S.
After you’ve decided to go ahead with the loan, the lender orders a home appraisal to evaluate the property you’re buying and make sure it’s worth the sales price (or more). You are expected to pay the appraiser’s fee. Other fees cover checking your credit and researching items that could impact the property, such as the flood certification for the property address.
Part 2: Title Company Fees
Title companies do a detailed search to show ownership, liens, or encumbrances on the house you’re buying. This helps to make sure sellers have clear title (ownership) of the property and the legal right to sell it. The search report also includes the amount of real estate taxes for the property. These include state, county, and city taxes as applicable to the location and value of the property. Because fees vary so much by title company and location, costs won’t be the same for every buyer.
Title companies also issue a title insurance policy to protect the lender. A borrower can also purchase an owner’s title insurance policy. This protects the new home owner from any future claims against a past owner. Owner title insurance is not required by law but is a good thing to have – going to court over a title claim could be costly.
Part 3: Escrow
Escrow is a holding account for property taxes and insurance premiums. Taxes and insurance are part of your monthly loan payments in addition to the monthly mortgage principal and interest due. Escrowed taxes vary depending on your settlement date and when the taxes are due to be paid. Insurance costs and taxes will vary by property location.
Escrows are not always required for a loan. The type of loan you get, as well as the percentage of down payment on the property purchase can impact whether you will be required to pay an escrow amount each month rather than paying those amounts yourself.
Part 4: Mortgage Points or Loan Discount Points
Some lenders charge you “points” to reduce your interest rate. One point costs one percentage point of your home loan amount (or $1,000 for every $100,000). Consider how long you expect to be in your home to decide if you can save enough in interest to make the fee worthwhile. Time is the key to breaking even. If you own your home long enough you may eventually save money, according to the FHA handbook on loan requirements and guidelines.
Before closing on a mortgage, you’ll receive documents required by state and federal law that spell out all of your closing costs. Closing costs will vary depending on your lender and your locale, from 2 percent of the purchase price to five percent according to Zillow.
For example, if you purchase a home for $319,500 and 3.3% of the purchase price is the amount of closing costs, then you’ll pay $10,544 inclosing costs. This is a lot of money, so it’s worth combing through the details of each cost. Make sure the fees make sense to you – ask your lender if other options are available for fees you’re concerned about.
“Personal attention and flexibility is what sets us apart at Capital Bank,” says Lee. “As your loan officer, I want to answer your questions and help you get through the home buying process in the easiest, best way possible for you and your family.”
Hang in there. When you’re in your new home, it will all seem so worth it!
If you’re ready to get a mortgage, contact us for competitive rates and great service. Buying your first home is a huge undertaking. Capital Bank wants you to have loan officers who’ll take some of the stress off your shoulders.