The joys of buying a new home: an in ground pool, four car garage, six bedrooms, a gorgeous kitchen, and that’s just the beginning. House hunting is fun, but actually purchasing a home can be quite a headache. You might find yourself asking, what’s this loan for, or how long do I have to pay this? Hopefully, your real estate agent knows what they are doing, but for now here’s a list of what goes into closing costs when you do find your dream house.
Closing costs vary depending on your loan; typically a $200,000 loan makes up $5,000-$6,000 in closing costs. So what goes into those thousands of dollars?
First, there’s a loan origination fee, which is how the loan offer is paid, and is 1% of the loan amount. Also, document preparation fees are in the closing costs, which are fees that lenders, brokers, and settlement agents charge for preparation of necessary closing documents. These are usually around $300, more or less. Of course, there are miscellaneous lender fees, which are about $200 or so. The appraisal, which is a professional opinion of the market value of the property, is also included. Then there are loan discount points. These are fees that a lender charges to provide a lower interest rate. One discount point is 1% of the loan amount.
There are some prepaid items in the closing cost as well. You must pay prepaid interest for the loan. This depends on the closing date which, if it is the middle of the month then you pay 15, more of less days of prepaid interest. Escrow reserves are also in the closing cost, which means you’re prepaying for several months of property taxes and home-owners insurance.
After all that, there’s still more! These next items are fees from the company. Escrow fees are based on the sales price of the house and usually split equally with the seller. Also, property taxes are going to be included in your closing costs. These are pro-rated based on the closing date. Then, there’s the recording fee, which is just a fee from the county of the state you are moving to. Finally, the title insurance is included, in which the seller usually pays for standard coverage and the buyer pays for extended coverage.