If you have ever bought a home, then you probably know about closing costs. But if you’re buying a house for the first time, you need to know what are closing costs, how much you can expect to pay, and how do you get your closing costs paid by someone else. And- did you know that closing costs can vary by state?
What are closing costs?
When buying a home, there are costs in addition to the purchase price (price of the home) at the closing. (The closing is the final stage of the home buying process. The buyer and seller sign the necessary documents, mortgage (home loan) funds are released from the escrow account, and the transfer of property ownership happens.) For first time homebuyers, it might be surprising that there are usually thousands of dollars in additional money that needs to be exchanged at the closing or shortly before.
These various fees include an appraisal, attorney fees (varies by state), and title insurance. The full list of fees and amounts is broken out on the Torii Closing Cost Calculator.
Here’s a list of what you can expect to be included:
- Borrower’s title insurance: Protects the buyer from any issues that can arise with the title, like outstanding liens that were not discovered in the title search.
- Underwriting: Part of the mortgage loan process.
- Settlement fee: Paid to the party conducting the closing, if an attorney is required by the state.
- Appraisal fees: Determines the value of a property to assure the lender that the home is worth the amount they are giving to the buyer in the mortgage. The appraisal is often paid by credit card and may not be due at the time of closing.
- Recording fees: Covers the cost of registering the sale and transfer of property. Once the deed of transfer is recorded, it becomes part of the public record.
- Survey: Many lenders will require a survey of the property to determine exact location of buildings and the property’s boundaries. The cost for a survey can vary depending on the lot size and type of property.
- Title examination: Looks into the home’s history of ownership to ensure that the title is clear of any liens or judgements and can actually be transferred to you, as the buyer.
- Credit report: The lender has to pull the buyer’s credit history and credit score.
- Courier: Transports the loan documents so the closing can happen as quickly as possible.
- Notary: A state-appointed individual to act as a witness to signing legal documents.
- Flood certification: Determines if a property is in a flood zone and needs flood insurance.
- Municipal lien certificate: Looks into unrecorded property issues that might not show up in a typical title search, like code violations or open or expired permits.
- Tax service
- IRS transcript fee
- Borrower representation
Note: In Massachusetts you need a real estate attorney to prepare the closing documents and conduct the closing. In California you don’t need a real etate attorney, so do not include this fee.
Additional Closing Fees: Pre-Paids
Additional monies are exchanged at the closing and are referred to as “pre-paids.” These include pre-payment of your mortgage payments and insurance for more than one month, and:
- 30-day interest
- Property tax
- Taxes payable at closing
- Hazard insurance premium
- Hazard insurance escrows
Closing costs include:
How much should I expect to pay at my closing?
Closing costs in all states vary by the purchase price of the property, but below are some examples of costs for properties that have a purchase price of $500,000 and $1,000,000, assuming 20% down and the rest mortgaged. If you are paying in cash, your numbers will look different because you will not need a loan estimate.
These numbers come from Torii’s Closing Cost Calculator, which is a useful tool to estimate what your costs might be.