Closing Costs Come out of the Woodwork
At least, they may seem to come right out of the woodwork. Closing is not a simple proposition, and as with most complex transactions, there are costs associated with it. Most buyers don’t factor in closing costs when they calculate what they can afford, and these costs can really hurt if you’re unprepared.
The first thing to do to avoid sticker shock when you’re in escrow is to pay attention to the Good Faith Estimates your lender gives you when you’re loan shopping. The GFE will not only help you evaluate the cost of the loan, it will help you figure out how much cash you’ll need at closing, over and above your down payment.
Even with the estimate, give yourself some cushion when planning what it’ll cost to close, since some of the pre-paid items will depend on factors like what day of the month you close.
Here is a breakdown of the types of closing costs you’ll likely encounter.
Loan fees - the cost of putting together the loan
Pre-paid items - these are items that you’ll need to pay anyway, and sometimes you’ll be required to pay them upon closing. They include interest, hazard insurance, taxes and HOA dues.
Reserves - again, these are items you’ll need to pay anyway, but if your mortgage lender is going to be paying your insurance and taxes on your behalf, they’ll usually require a certain amount be kept in an escrow account.
Title & escrow fees – this includes the cost of title insurance and the cost of the escrow company
Government recording fees – the cost of making your purchase official
The table below offers a ballpark cost for each item. Use this as a frame of reference, not as your closing cost bible. Your lender will be able to offer a better estimate, given your location and loan. Now doesn’t it seem like a great idea to ask the seller to pay for some (or all) of these costs? In this economic climate, it’s not an outlandish request. At the very least, it’s worth discussing with your realtor.
| Closing Item | Fees for a $50,000 Loan | Fees for a $100,000 Loan | Fees for a $200,000 Loan |
| Loan application fees and credit report |
$75 to $300 | $75 to $400 | $75 to $400 |
| Loan origination fee (1%) | 500 | 1,000 | 2,000 |
| Points (1 to 3%) | 500 to 1,500 | 1,000 to 3,000 | 2,000 to 6,000 |
| Title search and insurance fees |
450 to 600 | 450 to 600 | 450 to 600 |
| Lender’s attorney | 150 to 400 | 150 to 400 | 150 to 400 |
| Appraisal | 150 to 400 | 150 to 400 | 150 to 400 |
| Homeowner’s insurance | 300 to 600 | 500 to 800 | 700 to 1,000 |
| PMI (if you put down less than 20%) |
350 to 675 | 750 to 1,500 | 900 to 1,750 |
| Inspections | 175 to 300 | 175 to 300 | 175 to 300 |
| Survey | 125 to 400 | 125 to 400 | 125 to 400 |
| Recording fees | 40 to 60 | 75 to 150 | 100 to 200 |
| Transfer taxes | 75 to 1,125 | 75 to 1,125 | 75 to 1,125 |
| Buyer’s attorney | 400 to 700 | 1,200 to 1,500 | 1,500 to 3,000 |
| Escrow deposit for taxes (depends on closing date) |
100 to 800 | 100 to 2,400 | 100 to 3,000 |
| Partial month’s interest (depends on closing date) |
20 to 400 | 50 to 1,200 | 100 to 2,400 |
| Closing Costs Subtotal |
$3,335 to $8,660 | $6,125 to $8,850 | $9,550 to $22,975 |
| Plus 10% Down Payment | $5,000 | $10,000 | $20,000 |
| Total Cash Required at Closing |
$8,335 to $13,660 | $16,800 to $18,850 | $29,500 to $42,975 |
Note: Table courtesy Yahoo! Finance. These numbers are only rough estimates and will vary by location (especially in the case of taxes), by loan, and by closing date; you should read your Good Faith Estimate and closing statement (or HUD) very carefully and ensure you understand all the closing costs being charged.
At RSRE, we know how intimidating it can be to even consider buying a home, and we hope to help demystify the process, give helpful unbiased advice, and inspire you along the way. [
