You’ve found the home of your dreams and now you need to pay for it so be prepared up front for all the costs involved. Buying a home and paying for it may seem straightforward however fees for this or that may show up when you least expect it. Being financially prepared for all aspects of a real estate transaction will avoid the “OMG’s” later on.
What are closing costs anyway? You hear about them all the time but never really explored them in depth until now. Closing costs are the expenses connected to the sale of a home. Some of these costs may be incorporated directly into your actual loan amount. Although each transaction is different, some things stay the same.
Some of these costs/fees are:
- Attorney, closing and escrow fees: Paid by the seller, the buyer, or both parties; document preparation.
- Mortgage application fee: Typically this is paid to the lender up front however many buyers opt to roll this into their loan amount if this program is available. This can also be called a Loan Origination Fee.
- Brokerage house commission: Commissions are typically paid for by the seller to the brokerage houses for services rendered.
- Stamp tax or Transaction tax: This is an excise tax on the transaction and depending on the national location, may be paid for by the buyer or seller.
- Credit report: The buyer is charged this fee by the lender to “run” a credit check on all parties involved in the transaction applying for a loan to determine eligibility; interest rate qualification. Some require this to be paid up front and some lenders allow this to be added to the closing costs.
- Down payment; in addition to the funds placed at the time of the Purchase and Sale agreement, the balance of the down payment is due at closing.
- Home Inspection in MA is a personal choice to date however some lenders may require a home inspection be done (to determine condition) to secure the loan. This is paid for by the buyer however some sellers choose to get a pre-sale inspection to know what is wrong with their property before putting it on the market.
- Lenders will require an appraisal of the home they are anticipating providing a loan for to determine value; this is paid for by the buyer.
- Title examination is performed to attest that the title is clear and can be legally transferred to the buyer. Title insurance guarantees the property title is lawful and binding.
- Recording fees are costs paid to the municipality in control of land records. An official record of the property exchange is created and is paid for by either buyer or seller.
- Points, also called discount points are a type of pre-paid interest on the loan. For example: one point corresponds to one percent of the loan principal. Points are paid in exchange for a lower interest rate on the loan. Points may be rolled into the loan amount or paid at time of closing.
- PMI or Private Mortgage Insurance is what the lender charges if the buyer is putting down less than 20% of the purchase price.
- Other fees may apply.
Closing costs vary depending on where you live and the unique parameters surrounding each sale. Speak to your real estate agent and lender to make sure you have a solid grasp on what to expect. Surprises are lovely on birthdays and anniversaries but not when the closing of your dream home comes to fruition.