How much can I expect to pay in closing costs?
That's a common question, and a good one, especially from first-time homebuyers. Closing costs are fees that you pay to get a mortgage. These can include appraisal, title services, credit report, attorney and underwriting fees. Closing costs typically run between two and five percent of your purchase price.
Here are 5 examples of closing costs you can expect to pay:
- Appraisal cost. A home appraisal is a must-have for a home mortgage. The appraisal actually protects you - the buyer - as it ensures the selling price matches the market value of the home you're buying. An appraisal is not the same as a home inspection.
- Title insurance. Title insurance protects you against issues that may come up connected to the title of the property you're buying. Since the home and the land it's on have likely changed hands several times, it's possible that somewhere along the way, something went wrong. Whether it's a forged signature or a tax evasion issue, title insurance makes sure you're not on the hook for someone else's legal issues - and expenses.
- Underwriting and processing fees. Drawing up the paperwork, fact-checking and organizing something as big as a 15- or 30-year mortgage takes a lot of work. That behind-the-scenes work is covered by the underwriting and processing fees.
- Real estate broker fees. The broker handling the deal - for instance Century21, Prudential or RE/MAX - will sometimes have a fee on top of the real estate agent commission. It's usually somewhere around $200-$400.
- Origination fee. This is the fee from the bank to cover the cost of the loan origination. The mortgage bank typically charges around 1% of the loan amount as a loan origination fee.
At Amerifirst, we can help you look at ways to decrease your closing costs, including wrapping your closing costs into the total cost of the mortgage. You can also negotiate with the seller to pay a portion of your costs.
Cash to Close
Closing costs are sometimes confused with cash to close funds, since they're often paid at the same time. But they're different.
Simply put, cash to close is the amount you’ll need to bring to your closing to complete your real estate purchase. It equals your purchase price and closing costs, minus your mortgage amount, earnest money deposit, and any credits from the seller or mortgage lender.
We know it's a bit confusing but don't worry. Your loan officer can explain it in more detail and answer any questions you may have. We work hard to ensure there are no surprises, especially on closing day. We’ll let you know in advance how much you’ll be expected to pay -- before you sign on the dotted line.
Want to learn how to prepare yourself to move from renting to owning? Download our free eBook for first-time homebuyers below, "Get Mortgage Ready."