Closing costs are often the last thing a person thinks of when buying a
home. While closing is the joyous moment the home becomes yours, the
costs can be surprisingly aggravating.
When you purchase a home, condo or other property, you will go through
a period known as escrow. During escrow, various issues related to the
property transfer are worked out. The last day of escrow is known as
the closing day and you are going to be paying closing costs.
Closing costs come in many forms. Some involve significant dollars
while others are relatively painless. Here’s a list of typical costs:
Escrow Fees
An escrow agent is essentially a third party that works with the seller
and buyer to finalize the transaction. For this assistance, the escrow
agent will charge a fee. Depending on your area and the agent, you can
expect fees from a few hundred dollars to around a thousand or so. Make
sure you find out the fees before picking an escrow agent.
Home Loan
Obtaining a home loan in the current market is a highly subjective
event. “Points” can be a major cost associated with home loans. Points
are essentially a fee you pay or have build into the loan for the
privilege of being allowed to borrow money. A point usually equates to
1% of the loan. On a loan of $300,000, one point would equal $3,000. If
you have excellent credit, you can shop for a loan that doesn’t require
you to pay points.
Home and Title Insurance
Insurance for your home and title are a must. If you are borrowing
money to purchase the home, each is mandatory. If you are using your
own funds, you should still get both forms of insurance. As each name
implies, they provide insurance against issues involving your home and
problems with the title transferred to you. You want to have clear
title.
PMI
Private Mortgage Insurance, “PMI”, is mandatory if your down payment is
less than 20% of the purchase price. You can expect to pay a few
hundred dollars a year in PMI. Inspections, Appraisals and
Miscellaneous Fees
In the home purchase process, you are going to use a variety of
services to validate the property is your dream home. These services
come with fees and you can expect to pay for home inspectors,
appraisers and the like. Depending upon the state you live in, many of
these fees may be built into your mortgage. Nonetheless, you need to
know exactly what you must pay for on closing day so you can budget
accordingly.
Closing escrow should be one of the happier days in your life,
particularly if it is for your first home. Make sure you know the costs
associated with it so you don’t have to spend the day running around
borrowing money.
