What are real estate closing costs and what should I anticipate?
Buying a home is more than the down payment, securing a mortgage, and the interest rates and terms of the loan. There are a lot of additional costs to purchasing real estate. The costs range from three to seven percent of the final purchase price. When you know the different closing costs and fees ahead of time, you can get your finances in order. The more prepared you are, the easier it is to invest in real estate.
The Loan Itself
In addition to the down payment and loan, you can expect a loan origination fee that is one percent of the amount taken out, or roughly $100 per $10,000. It is standard to pay $75-300 for the loan application fee too. If you want to negotiate the interest rate, you should know about points. This allows you to buy down the rates. Make sure to ask your loan officer for a Good Faith Estimate (GFE). This is a list of all of the potential closing costs. This estimate will be fairly accurate. You may see it change if you change the loan terms. For example, if you go from a 15 year loan to a 30-year loan, the closing costs may change.
Timing of Closing Costs
You may pay closing costs once the title is ready to be transferred to your name. In some cases, you may be able to amortize the fees, which will increase the monthly payment but decrease the amount you need to close on your new real estate. Knowing all of the estimated costs means that you can manage your funds and plan accordingly.
Mandatory Hazard Insurance
Lenders often require homeowners to take our hazard insurance. This policy protects them in case there is a fire, damage, or theft. Rates are affected by your location, neighborhood, and amount of coverage, among other factors. The lender will have certain coverage requirements, but you can add other coverage like flood or wind protection. Take some time to shop around to find the best plan at the best rate to protect your home.
There are two types of insurance to expect when you close on real estate. Lenders require a policy that protects them in case they lose money because there are issues with the home’s title. This is a mandatory piece of buying real estate. A second homeowner’s title policy protects you in case there are issues later on down the line, like inaccurate documents, undisclosed liens on the property, and issues with the property’s title. Your policy is usually one percent or less of the total cost of the home.
Property Appraisal & Inspection
Before you purchase real estate, you need to have it inspected and appraised. The inspection involves having an expert come in to look for any structural issues. You do not want to buy a home only for the wiring to be outdated or for there to be roof or HVAC issues. The appraisal determines the property’s value and ensures the loan is appropriate. An inspection and appraisal usually happen around the same time in the buying process. An appraisal will cost between $300 to $600 depending on your location, the size of the home, and the appraiser’s expertise.
Lenders want to make sure that you can truly afford a home. If you foreclose, it is costly for the lender to get their investment back. This is why lenders require a two to five-month cushion that includes the home loan, insurance, and property tax rates. Your payment cushion is collected at the property’s closing. Seller Closing Costs
There are also closing costs to sellers. If you work with a real estate company, there is a closing cost for their services that comes from the sale. The company may have an in-house stager who will come in to arrange, photograph and market the property. If you are selling the home yourself, then you may want to find your own stager. Sellers should also expect to pay transfer taxes to the State and in some cases local municipalities. These taxes are due at closing are based on the sales price of the property.
Ways to Pay Closing Costs
There are different ways to cover closing costs. If you have a first-time homeowner’s loan, you can use gifts from friends and family members. Many cities and states have assistance programs for people too. If you need the costs amortized, make sure to communicate this with your loan officer. Remember to have a plan so that you do not make hasty decisions.
When you buy a home, it is a transaction that requires the support of an attorney. The attorney will prepare the contract of sale, review the title report, and draft all necessary closing documents. For assistance or further questions, contact the Law Office of Darren E. Sheehan at (631) 659-3377 serving the New York area, Long Island with an office in the Huntington/Cold Spring Harbor area.