C is for Closing on a home can cost you Cash

C is for Closing Cost

Congratulations you’re in the market to buy a home; this is an exciting time in life and knowing all of the in’s and out’s for the first time buyer can be overwhelming. You begin by searching for the desired home in the preferred location for an affordable price. This alone can be overwhelming, but before you close the deal, don’t forget to factor in the closing costs.

Zillow, an online real-estate listings site, estimates buyers typically pay between 2% and 5% of the purchase price in closing costs. So if you buy a $200,000 home, you can expect to pay between $4,000 and $10,000. Yes, this sounds shocking, but much of the cost involved in closing in part helps protect you and one of your biggest investments.

Thanks to tougher banking laws, there’s more transparency on the part of the lender when disclosing the cost associated with a mortgage, so as a buyer you should know in advance how much you will need for the closing.

Below are some of the typical closing costs:

Title ─ document discloses to all parties connected with a real estate transaction all the liens, defects, and burdens and obligation that affect the property. Approximately $500 – $1,000

Title Insurance ─ protects real estate owner and lenders against property loss or damage they might experience because of liens, encumbrances or defects in the title to the property. Approximately $300 – $500

Recording Fees ─ charged by government agencies for recording real estate purchase or sale so that it becomes a matter of public record. Recording fees are generally charged by the county since it maintains records of all property purchases and sales. Approximately $150 – $300.

Origination Fee ─ is an up-front fee charged by a lender for processing a new loan application, used as compensation for putting the loan in place and are quoted as a percentage of the total loan and are generally between 0.5 and 1% of mortgage loans in the United States.

Attorney Fees ─ legal representation to prepare and record legal documents. Approximately $400 – $2,000.

Real Estate Transfer Tax ─ collected in some localities when property changes hands or a mortgage loan is made. These can be quite large and are set by state and local governments. Varies by location.

Homeowner’s insurance premium ─ protects you and the lender against loss due to fire, windstorm, and natural hazards. You are often required to pay the first year’s premium in advance at settlement. Approximately $200-$2,000

Property taxes: Usually six months of county property taxes. Varies by location.

Appraisal: This charge pays for an appraisal report made by an appraiser.

Closing costs can add up so before you sign on the dotted line, do your homework and have enough cash on hand to be prepared for the closing cost. It is always recommended you attend the closing with an experienced real estate attorney.

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About Ann Zuraw

Ann Zuraw, the voice behind "Chicks, Chat and Change", is a Certified Financial Planner (CFP®), Chartered Financial Analyst (CFA®), and Certified Divorce Financial Analyst (CDFA™).If you have comments on this post contact Ann Zuraw

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