Closing Cost

"Closing" is the last step of buying and financing a home and when the property is officially transferred from the seller to you. 

Most paperwork in closing or settlement is done by our closing department and the title company. 

Prior to closing you should have a final inspection, or "walk-through" to ensure requested repairs were performed, and items agreed to remain with the house are there such as drapes, lighting fixtures, etc.

In most states the settlement is completed by a Title Company.  You will obtain a cashier's check written out to the Title Company from your bank prior to the day of closing. You will bring that cashier's check to the closing. Your "closer" from the title company will deliver the check to the seller, and then give the keys and garage door opener to you.

These are expenses you have to pay to state and local agencies, even if you paid cash for the house and didn't need a mortgage:

Transfer Taxes – Required by some localities to transfer the title and deed from the seller to the buyer.

Deed Recording Fees – To pay for the County Clerk to record the deed and mortgage, and to change the property tax billing.

Pro-Rated Taxes – Property taxes may need to be split between the buyer and the seller since they are due at different times of the year. For example, if taxes are due in October and you close in August, you would owe taxes for 2-months, and the seller would owe for the other 4-months. Pro-rated taxes are usually paid based on the number of days, not months of ownership. most lenders/programs may require you to set up an escrow account to cover these bills. If not, you may want to set one up yourself to ensure the funds are set aside for these important expenses.

State & Local Fees – Other state and local mortgage taxes and fees may apply.

There may be expenses paid to others like agents, attorneys, inspectors, Appraiser, or insurance firms, even if you paid cash for the property:

Title Search Costs – Usually your Title Company will perform or will arrange for the title search to ensure there are no obstacles such as liens or lawsuits regarding the property. 

Homeowner's Insurance – Most lenders require you prepay the first year's premium for homeowners' insurance, sometimes called hazard insurance, and must show proof of payment at the closing. You will have contacted the insurance person or company soon after you have a home address so they can work up an estimate. Providing us a quote early in the process allows us to order an insurance binder and we will use this information and these numbers in your final numbers. It is all rolled into to your "out-of-pocket costs".

Real Estate Agent's Sales Commission – The seller pays the real estate agent's commission, and if one agent lists the property and another sells it, the commission is usually split. There is also a broker fee that you will sign for up front and is part of your out-of-pocket costs at the closing. Recent changes mean that in some cases you are paying for your own realtor costs as the buyer.

Whatever you put down for earnest money will be deducted from our estimate and reduce what you bring to closing.  However, inspections are not included as part of our estimate or out-of-pocket.

Inspections – Normally around $500 or less, this is the expense that is not part of the lender estimate that I provide you. Your realtor will discuss the benefits of getting an inspection of the home. It is always a good idea, but some buyers will skip the inspection to make their offer more competitive in a multi-offer scenario. An inspection helps you understand the potential problems with the home that might need attention. (Most homes will need some work). Inspections might include items such as structural, water quality tests (further from the city or rural), septic (Further from the city or rural areas), termite (FL), roof and radon tests (MN, WI). 

Owner's Title Insurance – You may want to purchase title insurance in case of unforeseen problems, so you're not left owing a mortgage on property you no longer own. A thorough title search ensures a clear title. Lenders require that you purchase it on their behalf. This is included in our estimates.

Appraisal Fees – By law, we as the lender will need to order the appraisal for you. The cost is at least $470 (unless waived in rare scenarios). This cost will be estimated by at around $700 on our estimate then reduced to whatever the appraiser charges. (This is a pass-through 3rd party charge). You will pay with a credit card upfront and then we will deduct it from the amount you will bring to closing.

Moving Expenses – If you are changing jobs, your new employer may pay for your relocation, otherwise you must figure in the moving costs such as truck rentals, professional movers, cash for utility deposits like telephone, cable, electricity, etc. These expenses are not part of our estimate.

The Real Estate Settlement Procedures Act (RESPA) contains information regarding the settlement or closing costs you are likely to face. Within 3 business days from the time of your complete mortgage application, your lender is required to provide you a "Loan Estimate" which is an estimate of settlement or closing costs based on their understanding of your purchase contract (Meaning you have a purchase agreement for a new home). This estimate will indicate how much cash you will need at closing to cover prorated taxes, first month's interest, and other settlement costs. The FINAL closing disclosure will have the final number at the bottom of the first page and that final number will allow you to get the cashier's check written out to the title company for the closing.