First time home buyers often overlook mortgage closing costs. Closing costs can range anywhere from 1% to 5% of the purchase price of the home. To put that in perspective, closing costs on a $200,000 home could hypothetically cost upward to $10,000. Therefore, it is imperative that you keep these costs in mind when buying a house. Below is a list of some, but by no means all of the types of closing costs that you may incur:
Attorney Fee – This fee is for review of the documentation associated with the mortgage. This fee can be paid by the buyer, seller or both parties.
Title Fees – These fees include title search and title insurance. Title search is the process of looking at all of the historical records to ensure there are no unpaid mortgages or liens on the property. Even if a title search is performed, lenders will typically require title insurance. Title insurance will protect against any unpaid mortgages and liens on the property. These fees can be paid by the buyer, seller, or both parties.
Appraisal Fee – Lenders will require the property to be appraised by an independent party. Typically, this fee is paid by the buyer but can be negotiated with the seller.
Survey Fee – The lender may require a survey fee to determine the official dimensions and boundary lines of the property. This fee can be paid by the buyer or seller.
Mortgage Application Fee – This is the fee you must pay to the lender for processing your loan. Most lenders will require you to pay this fee prior to closing (usually at the time of application). In addition, most lenders won’t refund this fee if you are not approved. This fee is paid by the buyer.
Record Fee – This is charged by the local government entity to officially change the ownership records of the property. This fee can be paid by either the buyer or seller.
Points – Points are a one-time fee that the lender may require upfront in exchange for a lower interest rate. One point is equal to 1% of the mortgage. These fees are paid by the buyer.
Credit Check Fee – This is the fee for lender to be able to view your credit history from the credit bureaus. This fee is paid by the buyer.
As you can see, there are many fees that you need to be aware of when you consider buying a house. Additionally, it is important to note that you may be able to negotiate with the seller to pay some of the closing costs. Above, I listed the fees that are typically considered negotiable by stating the seller may pay.
Now that we took a closer look at these fees, let’s look at some actual costs. I plan to buy a house in the near future, so I am going to look at the average closing costs in Pennsylvania. You can do the same for your state by using Bankrate’s closing cost survey.
The average fees below are based on a $200,000 loan in Pennsylvania.
|Origination fees charged by the lender|
|Broker, originator or lender||$693|
|Attorney, closing or settlement||$305|
|Inspections (pest, etc.)||$125|
|Title search and title insurance||$2,334|
All fee averages are provided by Bankrate.com
Clearly, it is important to understand the various closing costs. These costs will make up a substantial amount of money you have to pay upfront in addition to your down payment.