What are typical buyer closing costs?
When purchasing a home, there are various expenses that buyers need to be aware of, and one of the most significant is the closing costs. These costs are the fees and expenses that buyers must pay at the time of closing on a property. Understanding what these costs typically include can help buyers plan their finances more effectively and avoid any surprises during the home buying process.
1. Loan Origination Fee
The loan origination fee is a charge imposed by the lender for processing the mortgage loan. This fee is usually a percentage of the loan amount and can vary depending on the lender and the type of loan. It covers the lender’s costs for underwriting, processing, and approving the loan.
2. Appraisal Fee
An appraisal is required to determine the current market value of the property. The appraisal fee is paid to the appraiser who conducts the inspection. This fee can vary depending on the size and location of the property.
3. Title Search and Insurance
Before closing, a thorough title search is conducted to ensure that the property has a clear title and no liens or other legal issues. The title search fee is typically paid to the title company or attorney handling the transaction. Additionally, title insurance is required to protect the buyer and lender against any future claims on the property’s title.
4. Survey Fee
A survey is conducted to verify the property boundaries and ensure that there are no encroachments or other issues. The survey fee is paid to the surveyor who performs the survey.
5. Attorney’s Fee
If an attorney is involved in the transaction, the buyer may be responsible for paying their fee. This fee covers the attorney’s services in reviewing the contract, ensuring compliance with local laws, and handling the closing process.
6. Home Inspection Fee
A home inspection is recommended to identify any potential issues with the property. The inspection fee is paid to the home inspector who conducts the inspection.
7. Private Mortgage Insurance (PMI)
If the buyer’s down payment is less than 20% of the purchase price, private mortgage insurance (PMI) may be required. PMI protects the lender in case the buyer defaults on the loan. The PMI premium is paid monthly or annually.
8. Property Taxes and Homeowner’s Insurance
At closing, the buyer may be required to pay a portion of the property taxes and homeowner’s insurance for the current year. These costs are typically prorated based on the number of days the property has been owned by the seller.
Understanding these typical buyer closing costs can help buyers plan their finances and ensure a smooth closing process. It’s important to discuss these costs with your real estate agent and lender to get a clear understanding of what you can expect and how to budget accordingly.
