When buying a home, it’s important to know that there will be certain costs you must pay when you close on the property. This is when the real estate transaction is finalized and the transfer of title from the seller to the buyer occurs.
When it comes to closing costs for buyers, there isn’t a flat rate or fee to rely on, so it is best to plan on it totaling about 3% – 5% of the purchase price of the home.
Here is a basic list of closing costs for buyers:
- Title insurance – This is a standard review of all recorded documents connected to or affecting a specific piece of property or parcel of land. You’re required to pay for lender’s title insurance at settlement, which protects the lender is a problem with the property’s title arises (such as unclear wills, unpaid taxes and easements).
- Attorney fees – In some states, like Massachusetts, it is common to hire attorney to complete the purchase. In New Hampshire, it is typically handled by a title company.
- Mortgage lenders fees – Lenders may charge an “origination fee,” which covers the cost of putting together everything needed for your loan.
- Points – You may have agreed to pay this money upfront to get a slightly lower interest rate on your mortgage.
- Appraisal fees – Required by the lender, an appraisal can cost about $350 to $600 and confirms that your home is worth what you are paying for it.
- Homeowners insurance – Homeowner’s insurance is required by all lenders and covers loss from fire or other calamity, theft and liability. You pay for the full year in advance before you close on the home, then monthly payments are set up to go into your escrow account and is collected as part of your mortgage payment.
- Flood insurance (if required) – If you home is in a “flood zone” the mortgage company may require that you to carry flood insurance.
- Mortgage insurance (PMI) – If your down payment on a home is less than 20% of the appraised value, you will have to pay for private mortgage insurance. This protects the lender if you default on your loan. PMI costs about 0.5% to 1.5% of the amount of the loan per year and is paid by your lender out of your escrow account.
- Government recording charges, transfer taxes – This includes the cost of transferring the property tax from the seller to the buyer’s name and the cost of the sale being recorded by the county government. The real estate transfer tax is on the sale, granting, and transfer of real property or an interest in real property. In New Hampshire, the tax is $ 15.00 per thousand, usually split equally between buyer and seller. In Massachusetts, the tax is $4.56 per thousand, which is usually paid by the seller.
- Initial deposit for escrow account – This sets up the separate escrow account that your lender will use to pay your insurance and property tax bills when they are due. Some lenders require this deposit to include several months’ advance payment of insurance, property taxes and fees. Each month, your mortgage payment will include a portion of the estimated annual costs along with your principal and interest.
Your mortgage lender will tell you what you need to bring to closing. If closing cost are going to be a challenge, there are ways to construct your offer to buy a home in a way that gets closing costs covered or shared. I would love to assist you in finding your new home and successfully navigating the closing process. Please give me a call to get started.