What You Need To Know About Closing Costs
When you think you’ve completed every step of the home buying journey, from saving for a down payment and getting approved for a mortgage to finding the perfect home and making an offer, there’s one more hurdle to jump — closing costs.
Closing costs can come as an unpleasant surprise to buyers who aren’t prepared for the final expenses of their home purchase. Make sure you understand what closing costs cover and budget for them accordingly.
What Are Closing Costs?
The term “closing costs” is used to encompass a range of fees for the services and expenses required to finalize and approve your mortgage. The seller is responsible for a handful of closing costs, but most of the burden falls on the buyer. You can expect your closing costs to total between 2-5% of your total loan amount.
What Fees Are Included in Closing Costs?
Closing costs include property-related fees, loan-related fees, mortgage insurance fees, property taxes, insurance fees, and title fees. Here are the most significant costs to understand.
Property-related fees include items like the appraisal fee and home inspection. A certified appraiser charges a few hundred dollars to verify the value of the home you are purchasing. A home inspector charges about the same amount to inspect the home and confirm that it’s structurally sound. If your home inspector identifies any problems, you may be able to negotiate a lower price or require the seller to fix the issues.
Loan-related fees cover the application, loan origination, prepaid interest, and other little-known costs. The loan origination fee, also known as an underwriting fee or processing fee, is the most significant of the loan-related fees because it’s based on the price of the home you purchase. Depending on your lender, you may pay between 0.5% and 1.0% of your loan amount in origination fees.
Mortgage insurance fees can add up as well on closing day. Some lenders require borrowers to pay the first year’s mortgage insurance premium upfront. Others ask for a lump-sum payment that covers the life of the loan. Overall, you may spend upwards of 2% of your property’s purchase price for mortgage insurance.
Beyond mortgage insurance, you also must remember to cover property taxes and other insurance fees in your total closing costs. Most buyers pay two months’ worth of city and county property taxes, but the total varies by location. You can also expect to pay any condo or homeowners’ association fees at this time.
Last but certainly not least, you must pay title fees that cover the title search, lender’s title insurance, and owner’s title insurance. All of this is done for your protection if a faulty title search fails to find title problems that could lead to a claim of ownership on your property after you purchase it.
If you need extra assistance purchasing your home and preparing for closing costs, reach out to Benefit Title Services in Tampa, Florida. Benefit Title has spent more than a decade helping countless homeowners throughout Florida with quick, seamless transactions and top-notch customer care. Call (855) 521-3343 today to get a quote and learn more.
