When purchasing a new home, there are some common closing costs for buyers. These include a variety of fees and other charges. So it’s important to have a complete understanding of all associated costs when purchasing a home.
We have listed the 5 most common closing costs below to give you a better understanding of what you should expect when purchasing a home.
During the closing process, a homebuyer can expect to encounter the following fees and costs when obtaining a loan….keep in mind that the fees and costs are different for cash purchases.
1. Appraisal Fee
Lenders require a property appraisal before approving your new home loan. They want to be sure the value of the loan does not exceed the value of the property that you intend to buy or exceed the loan-to-value they are willing to offer you for your home loan. That’s why they require you pay a professional property appraiser to make this determination. The appraisal fee is the money paid to an appraisal company that determines the home’s fair market value.
2. Credit Report
All lenders require that a credit report be run in order to check your credit score and credit history. This report shows the lender that you have the capacity to pay back the loan. Your credit score also affects the interest rate you will get for your loan.
The fee you pay for the credit report will be paid directly to either Equifax, TransUnion or Experian. A credit report can cost between $15 and $30.
3. Closing or Settlement Fee
This is a fee that is paid to the title company that conducts the closing.
- The title company coordinates the closing process with all parties, including the buyer, seller, agents, lender and any other parties involved in the transaction.
- The fee covers the cost of all the work the title company does to consummate the closing, including the cost of preparing and checking documents required to be completed during the closing process.
4. Title Search Fee
The title search fee is paid to the title company to conduct a thorough search of records pertaining to the home you’re buying. The title company will examine previous deeds, name and property indexes, court records and a range of other documents. This search is vital to ensure there are no problems connected with the title of ownership to the property.
5. Various Forms of Insurance
- Private Mortgage Insurance (PMI): Private Mortgage Insurance is usually required if you take out a loan that is more than an 80% loan-to-value (ie the equity is less than 20%). You’ll also have to pay an upfront mortgage insurance premium if you take out an FHA mortgage loan.
- Flood Insurance: If the home is situated in a flood zone, a lender will require you to pay for flood insurance.
- Homeowner’s Insurance (HOI): Homeowner’s insurance covers any damages that occur to your home, which can include its contents, and a lender will require you to pay your first year’s homeowner’s insurance at closing.
- Title insurance: You must pay lender’s title insurance at closing to protect the lender from any liens that can arise because of previous title matters. It’s also wise to pay for owner’s title insurance to protect yourself as well.