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Required Closing Costs When Buying a House

Required Closing Costs When Buying a House

The process of buying a house could be complicated, especially for first-time buyers that have no idea of the process. Closing costs are one of the areas frequently misunderstood as many buyers are usually clueless on what to expect and what they will pay.


What are the parts of a Closing Cost?

Closing costs have to do with all essential fees and expenses when buying a home. This charge could come from the lender or third party for the services they rendered. Here are some lists of closing costs alongside the period they are due:

  • Loan origination fee or mortgage application fees: the fee is charged for the processing of the loan application, which might be paid at closing

  • An inspection fee is the cost of a home inspection, which a licensed inspector charges. In addition, a special assessment like termites or mold might be included, which is paid at closing. 

  • Appraisal fee: the appraisal charges this to determine the home value and is paid by the buyer at closing

  • Fees for title search, survey, and recording are also paid at closing either by the buyer or seller. 

  • Brokerage Commission: the seller pays this to the real estate brokers at closing.

  • Home Warranty: the buyer also pays this at closing even though it might be the responsibility of the seller

  • Property Insurance: the buyer pays this to the insurance company to ensure the property at the closing.

  • Property taxes: the value of these taxes need to be estimated to determine what each must pay for the portions of the specified tax year

  • Points: this is the amount charged to bring down the interest rate for the life of such a loan. One point is the same as 1% of the loan interest. 


Essential Things to Know 

Buyers will love to have an idea of the entire costs of these expenses. Although the value varies a lot, it ranges between 2 to 5% of the total purchase price. There will be a loan estimate when you apply for a loan, even though the main cost is a factor of the state and region where you got the property. 

Before closing, you will get the closing disclosure, a vital document explaining the exact detail of the loan and actual closing costs. Don't be fooled by some that say that the seller pays the closing cost. Sometimes, the buyer might request assistance from the seller to take care of some costs, but the seller is not obligated to agree. 

Make sure to understand the fine prints before you sign anything. Also, avoid exchanging cash at the closing.


Understanding Closing Disclosure

For the first part of your closing disclosure, you will see information about the buyer, lender, and seller. Next, you will see the property address, selected settlement company, and the closing date. Information on the loan type used for the purchase will also be there. You will also see the buyer’s costs as the document gives the amount due to and from the buyer while the final amount will be on the last line.

For the next section, you will find the amount due to and from the seller before considering the settlement charges. In this, you will see the amount listed in the escrow, lender fees, title insurance with other settlement charges. Finally, the cost specified on the document is compared to the loan estimate, which quickly reveals any difference. 

Finally, the last section gives information on the loan that you get. These are the loan value, the interest rate, monthly payment, information where it is a fixed or adjustable-rate loan. You also get to see whether there is a prepayment penalty or a balloon payment.

Make sure to carefully review this information with the lender before appending your signature. Make sure you are cleared on the entire fees and obligations. Preparation and knowledge are vital and essential to a smooth, efficient closing cost with no surprises down the line. 


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