What are Closing Costs and Which Ones DO I Have to Pay?
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Buying or selling a home can be complex and emotional, especially if it’s your first time tackling the process. There are many steps to buying a home, even after an offer has been accepted. Buyers and their agents have much to do during a home’s due diligence period. And while sellers’ responsibilities are different, there are just as many on their end.
Among the most important things to plan for during a home transaction are the closing costs. Understanding closing costs and who is responsible for each will ensure that there are no surprises during your home transaction.
Today, let’s break out the typical closing costs of home buyers and sellers, as well as what they mean.
Typical Buyer Closing Costs
Many of the buyer’s costs are associated with their research of the property. The buyer will cover the fees associated with the home appraisal, inspection, and survey (if one is performed). The buyer is also responsible for the title insurance, recording fees for the deed, fees associated with getting the home loan (including origination), and the attorney fee for closing.
At its core, a home appraisal is a professional assessment of the value of a property. As a buyer, this can tell you how well the home is priced versus how much an appraiser thinks it is worth. It’s also an integral measurement your bank or lender considers when determining how to structure your loan—or whether to give you a loan at all. Appraisers consider the size and features of the home (e.g., square footage, number of bedrooms, etc.), as well as its location, the home’s current condition as observed by the appraiser, and recent sales information for similar properties.
While it may sound similar on the surface, a home inspection is different from a home appraisal, but just as important. During the home inspection, a licensed home inspector will evaluate the visible and accessible systems and components of a home to give you a better understanding of their condition. This often includes the home’s structure, exterior, roofing, plumbing, electrical, heating and air conditioning, interiors, ventilation and insulation, and fireplaces. The home inspector does not address the cost of any recommended repairs or guarantee the home complies with local building codes.
A property survey is not a required examination of the property you’re purchasing, but could be helpful if you have questions about the boundary lines, zoning classification, or rights-of-way for the property. Property surveys indicate the lot size and boundaries, as well as a written description of the property. The surveyor will also certify that structures do not violate any local size or proximity guidelines and show you where any underground utility lines are, which could be helpful during any future excavation or construction.
In a nutshell, title insurance protects against loss or damage resulting from defects that affect the title to your home. When you buy a property, the previous owner conveys the title to you as evidence of your full legal ownership. Occasionally, a hidden defect in the title or a mistake in a prior deed, will, or mortgage may give someone else a legal claim against your property. If such a claim is made, title insurance can save you time and money by covering legal expenses and any claims that arise from issues prior to your ownership.
Home Loan Origination Fees
Similar to any commission-based payment, home loan origination fees are charged up front by your lender as compensation for putting your home loan into place. Fees are often quoted as a percentage of the total loan and average 0.5-1.0%.
Attorney Fee for Closing
You may need to hire an attorney to review the terms negotiated in your purchase contract. An attorney, as opposed to a title company, may handle your closing, as well. These fees usually amount to $500–$1,000, but may be more depending on your situation.