A Lexington home costs more than just the sale price. For
example, closing costs—which make up about 2% to 5% of the home’s purchase
price—are a major added expense. Michael Hyman, a research data specialist at
the National Association of REALTORS®, shares the charges that make up closing
costs in a post at the association's Economists’ Outlook blog so that home
buyers can be prepared.
Lenders provide a Closing Disclosure at least three business
days prior to closing on a mortgage. But buyers will need to budget for these
added costs ahead of time to avoid sticker shock days before closing.
Origination fees. This is the fee charged by lenders
for processing the application and underwriting it. The fee typically ranges
from about 0.5% to 1% of the borrower’s mortgage. Sometimes, it’s higher for
smaller loans because “the fixed costs are a higher percentage of a smaller
balance,” Hyman notes.
Service charges. These include items such as the
appraisal, credit report, flood determination and certificate, tax status, pest
inspection, title search and insurance, and survey fees. Appraisals and surveys
can cost anywhere between $300 to $500 each. Title services can add up to about
$2,000, so buyers may want to shop around for that.
Transfer taxes and recording fees. Transfer taxes vary
by state but can run up to 2.7% in parts of New York. “It does not matter if
the buyer or seller pays, as long as the transfer tax is paid to the
government, so transfer taxes can be negotiated between the buyer and seller,”
Hyman writes.
Escrow items. Homeowners insurance, property taxes, and
primary mortgage insurance (if applicable) also are added fees. Buyers moving
into a homeowners association may need to pay monthly dues for the upkeep of
the community.
Hyman offers the following example for how these costs can
add up: A buyer is purchasing a $275,100 home with a 5% down payment. The loan
amount is $261,345. Closing costs are estimated at 2.5% of the loan value—so
$6,533. The buyer made a $2,000 earnest money deposit, so they would need to
bring $4,533 in cash at the time of closing. “Altogether, this means that the
potential homeowner will need to have access to approximately $18,300 in cash
to pay for the down payment and closing cost net of the earnest money deposit,”
Hyman says. Source
Closing costs are the costs that paid at the end of a real estate transaction. Closing costs may include loan origination fees, discount points, appraisal fees, title searches, title insurance, surveys, taxes, deed recording fees, and credit report charges. If the borrower refinances a mortgage or obtains a home equity loan then he will have to pay the closing costs again.
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