What do Closing Costs Include?

In the simplest all-cash transaction, the only closing costs and fees are ESCROW, the first year’s FIRE INSURANCE, a fee to the County for recording the DEED, and reimbursing any PROPERTY TAXES the seller may have paid in advance.

For transactions involving a loan, a good rule of thumb for the closing costs is 1.5 percent of the total purchase price plus any points on the loan.  The following is a break down of the costs:

LENDER FEES:  “Funding Fee”, “Document Prep Fee”, “Origination Fee”, etc.  Just ask for their bottom line price on a Good Faith Estimate.

POINTS:  Money paid upfront to lower the overall interest rate on your loan.  Each point usually runs around $1000.

IMPOUND ACCOUNT:  An account that allows the lender to pay your fire insurance and taxes.  This amount varies depending on when you purchased your home during the tax year.

HOMEOWNER’S FEE:  Certain communities have annual homeowner’s fees which pay for various services throughout the year (i.e. pool, trash, community open space, etc.)  that need to be paid ahead of time.

FIRST MONTH’S MORTGAGE INTEREST:  Paid to an escrow account (or at least the portion from closing to the end of the month).  This helps banks resolve purchases made at different times of the month into one mortgage payment (In Arrears) at the beginning of every month for the previous month.

PRIVATE MORTGAGE INSURANCE (PMI):  PMI is required when a loan for more than 80% of the home’s purchase price is necessary.  This is the riskiest loan for a lender to provide; therefore, they require PMI which is typically around .5-.75% of the loan amount per year.  You start the impound account with 2 months paid up-front along with the monthly fee, which goes away when the loan amount reaches the 80% (through appreciation or from paying down the mortgage).  You must request PMI to be removed when you feel you have 20 % equity otherwise the insurance company will continue to collect it.  For VA or FHA loans, the government insures over 80% loans for the lender. 

APPRAISAL FEE and a CREDIT REPORT fee will be paid out of your pocket at closing.

HOME OWNERS INSPECTION:  A professional inspection given by whomever you hire, that I highly recommend for both new constructions and resale properties.  The inspector’s job is to look over the home and provide recommendations.

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