When referring to “closing costs,” most buyers want to know all the expenses they will need to pay between going under contract and the time when ownership of the house officially transfers to them. Those costs differ depending on whether you are making the purchase with a loan or paying cash. The first group of expenses applies to both situations. The second are applied if you’re financing your purchase.
Keep in mind these estimates are just that: estimates. They are intended to give you a “ball park” idea of how much money you will need to close on a home. Not all of these expenses are mandatory. Those are noted with a double asterisk (**). Those with a single asterisk (*), are optional only if you are paying cash. For example, while we recommend you get a survey so you know if your neighbors are infringing on your property, you may be willing to take your chances and skip it.
These amounts are in addition to your down payment.
If you have any questions, we can help you find answers. Call us at 910-202-4813.
Expenses Associated with Nearly All Home Purchases
|General Home Inspection Fee**||$350-500|
|Attorney Fee||$700-1,000 ($400-700 for cash purchases)|
|Wood Destroying Insect Report*||$50-95|
|Title Insurance*||Depends on price of home (click for rate chart)|
|Recording Fee||$82 ($26 for cash purchases)|
|Home Owners Insurance (fire, theft, etc.)*||Varies widely depending on value of home and contents (see notes at end of article)|
|Home Owners Wind and Hail Insurance*||Varies widely depending on construction type, and value of home and its contents (see notes at end of article)|
Additional Expenses When Financing Your Purchase
|Credit Reporting Fee||$12-50|
|Loan Origination Fee or Discount Points||Typically, 1% of the loan amount|
|Flood Certification Fee||$8-20|
|Tax Service Fee||$65-90|
|Escrow Reserve (taxes and insurance)||Typically, equal to ¼ the cost of your annual tax and insurance bills|
Expenses Under Special Circumstances
(details on when they apply are at the end of this article)
|Well Water Inspection||$150-350|
|Septic System Inspection||$150-300|
|Upfront Mortgage Insurance Premiums||Varies widely, avg. $2500-6500|
|HOA Capital Contributions||$20 –750|
|Home Warranty (sometimes paid by seller)||$455-750|
* Optional when paying cash, but required when financing. Highly recommended in both situations.
** Optional whether paying cash or financing. Highly recommended in both situations.
Elevation Certificate: Provided by a licensed surveyor, an elevation certificate confirms the elevation of your property. Your insurance company will require you to provide one if the property you’re purchasing is in a federally designated flood zone.
Well and Septic Inspections: Most homes in the greater Wilmington area are served by municipal water and sewer systems. If you purchase a home that is served by a well or a septic system, we encourage you to have both inspected to insure they are operating correctly. Depending on the type of financing you are using, your lender may require these inspections.
Roof and HVAC Inspections: Either or both of these may be recommended if your general home inspector reports suspected problems with the roof or the heating, ventilation and air conditioning (HVAC) units. The specialized inspection can help you determine the extent of the problem and the cost of fixing it.
Upfront Mortgage Insurance Premiums: When your down payment is less than 20% of the amount of the loan, the lender will require Mortgage Insurance. If you are using a conventional loan, you will have the option of paying a mortgage insurance premium each month until you have paid off 20% of the loan or, instead, you can make a lump sum payment upfront and waive the monthly fee. The premium depends on your credit score and whether you’re borrowing 85% or 95% (or anything in between) of the value of the home. As a broad guideline, upfront mortgage insurance premiums tend to run between 2-3.5% of the loan amount. If you are tight on funds for closing costs, you are unlikely to pay the upfront mortgage insurance premium. However, if you have the funds available and you expect to be in the house at least 3 ½ – 4 years, it may save you money to pay upfront rather than monthly.
It’s worth noting FHA, USDA and VA loans require upfront AND monthly mortgage insurance premiums. You can’t select one or the other. You pay both. In most cases, the lender will allow you to roll the upfront premium into your FHA, USDA or VA loan, so it will not affect the amount of money you need at closing.
Home Owner Association (HOA) Working Capital Contributions: These are fees paid by new home owners in a neighborhood to build the Association’s reserve fund to pay for Association expenses. The fee is common when purchasing a newly constructed home, however, there are a handful of well-established neighborhoods that charge the fee whenever a home transfers ownership. The fee usually ranges from $250-500, however, one neighborhood (Magnolia Greens) charges the new home owner $750 each time a property is sold.
HOA Dues: If you are purchasing in a neighborhood with an HOA, you may be required to pay some fees in advance. The amount will vary widely depending on the fee and the frequency it is paid. For instance, you may need to pay only one month’s worth of fees if the fees are collected on a monthly basis. However, some neighborhoods collect on a quarterly, semi-annually or annual basis. Admittedly, this is a wide range, but to provide a point of reference, the total amount collected at closing could range from a low of $10 to a high of $3-4,000. Typically, the number is most often between $75 and $350.
Home Warranties: Sellers will often include a one-year home warranty to the buyer. The warranty covers repairs of appliances and major systems, such as electric, plumbing and HVAC. If the seller will not provide this coverage, you may wish to purchase it yourself, especially if the home is more than 10-12 years old and has had no updates. Warranties generally run between $455-750 per year, depending on the company, the standard service fee charged, and whether or not you elect to upgrade the policy to “supreme” coverage.
An Exclusive Buyer Agent will help you sort through all of these closing costs and determine how much you will need for the specific home you want to purchase. If you are not working with another real estate agent, please call us. We’d love to make this (and every) part of buying as uncomplicated as possible for you! 910-202-4813.