Buying a home can be a confusing, complicated process, made even more so by the lack of familiarity most of us have with it. Most Americans will only buy a home once in their lifetime, so the process will be completely new to them. One of the more misunderstood aspects of home buying is the concept of closing costs. These are costs related to appraisals, escrow, taxes and other fees for which the buyer is usually responsible. Some buyers prefer to have closing costs rolled into their loans, while others just bring a check along to the closing and pay for them there. Hardly any buyers, however, take the time to educate themselves about the closing costs and just pay what they’re told. To help educate buyers, we’ve included the following breakdown of typical closing costs, and how much they usually run. Buyers should always ask their lender to run them through all closing costs before they close to avoid surprises.
Appraisal Fee – A fee paid to an appraisal company for determining the market value of the home. Typically $300 to $400 in the Colorado Springs market.
Closing or Escrow Fee – A fee paid to the title company, escrow firm or attorney for handling the closing. Typically calculated as a fee of around $250 plus 0.2 percent of sales price.
Home Inspection – In most home sales, the seller should bring in an inspector to ensure that everything in the home is in good working order. Inspector will confirm that there are no problems with the foundation, electrical wiring or anything else in the home. Some sellers fail to get their own inspection, but are then surprised at closing when the buyer wants to be reimbursed for it at closing. Inspection fees should not cost more than $500.
Title Search Fee – Also known as a title exam fee, this fee is paid to a title company for ensuring that a seller is the only person with a rightful claim to the property. This fee varies greatly by market and company.
Credit Report Fee – Typically no more than $30, this fee is paid to a third party for a report on the credit history of either party.
Flood Determination Fee – Fee paid to a third party to determine if property is in a flood zone. If it is, buyer is required to purchase flood insurance separately. Flood Determination fees usually run about $20.
Courier Fee – Not used in all home sales, this fee applies if a courier service is used to transport documents between agents, attorneys and bank staff in order to speed up the closing process.
Title Insurance – A small fee paid to protect the seller in case someone comes forward with an ownership claim on the property after sale.
Home Insurance – All home owners are required to carry insurance as long as they have an outstanding mortgage. Buyers are usually required to pay the first year of insurance at closing or before. Varies based on insurance firm and value of home.
Natural Hazard Disclosure Report – Some states require sellers to provide this report for the seller, informing him of any damage the home has sustained as a result of natural disasters. $100 to $150
Escrow Deposit for Taxes, Mortgage Insurance – Home buyers are often required to put down two months worth of property taxes and mortgage insurance.
Title Transfer Taxes – Fees collected by municipal officials for transferring title from seller to buyer.
Recording Fee – Municipal fee charged for detailing home sale information into the public record. Amount depends on governing agency.
Processing Fee – Lender fee designed to recoup costs associated with issuing a loan. These fees vary greatly depending on the lender, but can run as high as $1,000.
Underwriting Fee – Also charged by a lender, this fee is designed to recoup costs associated with investigating the borrower’s credit-worthiness.
Loan Discount Points – “Points” are essentially pre-paid interest payments. Buyers will often agree to pay points in order to keep their monthly mortgage payments lower. One point is equal to one percent of the total amount financed.
Pre-paid Interest – Buyers will often pay a small amount of insurance at closing in order to get the interest paid up through the beginning of the month.
Property Tax – In most home sales, six months of property taxes are expected to be paid by the buyer at closing.
HOA Transfer Fees – Usually paid by seller, these fees go the the homeowners association, who supplies a report detailing what monthly dues are, whether or not they’re current, the association’s financial records and minutes of its last meeting. Buyers are advised to look over these documents carefully. These fees can vary greatly, running anywhere from $100 to $400 for a complete report and transfer.