Have you decided to buy a house but aren’t sure what it’s going to cost you when you find the right one? Let’s look at the closing costs you can expect to pay when you purchase a property, from lender fees to inspection costs, so you won’t be surprised at the closing.

Down Payment And Loan Fees

Buying a house is one of the most exciting things you are going to do in life and it’s easy to get swept away in the fantasy and lose sight of your investment costs. it’s important to know exactly how much your dream home is going to cost you, and how much you need up front. The best homes sell fast, so you should be ready to act when you find what you’re looking for, but part of being ready is understanding the process and having an idea of what your baseline budget is for closing costs. 

The first and often largest out-of-pocket cost is going to be your down payment. The down payment percentage can vary based on the type of loan, so you need to start speaking to a lender early on in the process. They will let you know what kind of financing fits your needs and your financial situation the best. 

Now that the down payment is out of the way, let’s talk about the actual transactional costs of purchasing a house. These are the costs of doing business that occur when you buy a house. When financing your home purchase, the first costs you’ll see on a closing statement are your loan fees. 

Depending on how your lender structures your loan, you could get charged what are called ‘points.’ This means you are paying your interest upfront or buying down your interest rate. Your lender will probably also charge you for an appraisal, a credit report fee, processing and underwriting fees, and flood certification. These charges can vary by lender and the size of the property, but a ballpark estimate would be around $1,000- $1,500.

Mortgage Insurance And Title Fees

Your lender may also structure your loan so that you pay mortgage insurance upfront. Mortgage Insurance protects the lender in case you default on your loan and is required on some types of loans or if you put less than 20% down. 

The title company will also collect property taxes and homeowner’s insurance as required by your lender. The amount they charge varies by lender and by your area, but they could collect anywhere from a few months up to a full year. All of these things are handled by an escrow account that is also set up by the title company. 

The rest of your closing costs are your title fees. The title company is going to charge you for a title insurance policy, which guarantees that when the title is transferred to you, it is transferred without any records or events that would affect ownership like a lien or a levy. The cost of title insurance is based on the selling price of the property and varies by title company, so ask your Realtor ahead of time for an estimate of this cost.  

Insurance, Taxes, And Inspections

In some areas, it is common for a $25 charge to appear on your settlement statement for a closing protection letter. This is another insurance policy that protects your money as it travels to the wire from your lender to the title company and back to the seller.  You will also be responsible for other charges such as closing fees, recording fees, and title services fees which could add up to around $700.  Some states also charge Transfer Tax, so make sure you are aware if your state charges those as well.  

Once you have an accepted contract on a property you will probably want to do home inspections.  Most contracts will give you up to 10 business days to do all the inspections you need.

Most people choose to hire a general home inspector first but additional inspections may be recommended by your inspector or your realtor.  If your new home has a well, septic system, pool, or signs of bug or rodent infestation, you may need other professional opinions who specialize in those fields.  Most home inspections cost from $300-$500.  

Counting The Costs

I hope this helped give you a realistic idea of closing costs when purchasing a property.  For buyers, it is very important to understand these closing costs upfront so that you can budget for them and not be blindsided. Your closing costs will ultimately be dependent upon several factors, so if you’d like to get a better estimate on what yours might be, please feel free to give me a call.