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What Will My Closing Costs Be?
 In
the simplest all-cash purchase, the only fees are ESCROW ($150
+ $1.50 per thousand), your first year's FIRE INSURANCE ($300-600),
a fee to the County to record the GRANT DEED ($40) and reimbursing PROPERTY
TAXES the seller has paid in advance.
For purchases involving a loan,
a good rule of thumb is 1 1/2% of the purchase price plus any points
on the loan. Here's a breakdown of the costs:
- A TITLE INSURANCE policy will be required for the lender,
figure on $600 for a $500,000 purchase.
- The are various LENDER FEES that go by various names
such as "Funding fee", "Document prep fee", "Origination fee", etc.
Forget the names, just ask the lender for the bottom line total, or
a Good Faith Estimate.
- POINTS may be charged on your loan if you
are going after a better interest rate.
- If you have an IMPOUND ACCOUNT that allows the lender
to pay your taxes and fire insurance, the account will need some money
to start it off. This will vary depending on where we are in the tax
year so that TAXES can be paid.
- If you purchased in a community with a HOMEOWNER'S FEE,
these would also be paid ahead of time.
- The FIRST MONTH'S MORTGAGE PAYMENT is also made in
escrow, or at least a portion of a month. This is so your first payment
is not a partial payment which messes up the bank's bookkeeping. For
example, if you close March 15th, you will pay interest until March
31st in escrow. Your first mortgage payment will be due May 1st which
pays for April because mortgage payments are always made in arrears.
- If you purchase with less than 20% down, expect to pay PRIVATE
MORTGAGE INSURANCE, or PMI for short. The portion of the
loan over 80% loan to value is the riskiest part for the lender. With
low-down government loans like VA and FHA, the government insures
this part for the lender. For conventional loans, private insurance
companies provide the same service, for a fee. A typical charge is
.5-.75% of the loan amount per year, so divide by 12 to get the monthly
figure. You start off the impound account with 2 months up-front,
and then a monthly fee until the loan-to-value reaches 80%. This can
happen through appreciation, or from just paying down the mortgage
over time. You have to request the insurance be removed on your own
when you feel you have 20% equity. The insurance company is happy
to collect from you forever unless you challenge it.
One way around PMI is to use a Home Equity Line of Credit (HELOC)
as a second trust deed. HELOCs usually have a variable interest rate,
so be sure to discuss all the pros and cons of this strategy with
your lender.
Your
out-of pocket expenses will be an APPRAISAL FEE and a CREDIT
REPORT fee. Expect around $400 for these services that the mortgage
broker will need to provide for you prior to getting the loan.
Another out-of-pocket is the PHYSICAL INSPECTION. When you purchase
a resale home, you have the right to hire whatever professional inspectors
that you want to look the place over and give you recommendations. This
will run from $300-$400, but I always advise that you do it to avoid
surprises later. Also, the inspection report gives us third-party documentation
when we ask the seller for repairs.
The numbers used in this article are approximations, and used for educational
purposes only.
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