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Purchasing a home involves more than searching for the perfect house in the ideal location. Buying a home involves many factors outside the realm of what house to buy and where; buyers need to be aware of the additional financial obligations involved with the home buying process.
The lender that approves the mortgage will be a resource for information on estimated closing costs. In addition to the fees the lender charges for the mortgage including any points, the buyer will be required to pay expenses related to title and escrow fees, prorated taxes, fees for home inspections, HOA transfer fees and others. Many of the fees and expenses can be negotiated as part of the purchase contract with the seller.
The home buyer’s real estate agent can negotiate with the seller to have him pay all, or most, of the buyer’s closing costs. In some cases, the seller may agree to these fees based on the net proceeds from the sale of the property and how badly they want to sell the home. If you are purchasing a $300,000 home and are willing to pay full price to the seller, you may be able to negotiate with the seller to pay your closing costs. The seller will subtract the amount of the closing costs from the offer you have made to achieve the actual net proceed amount. Be aware though, that in some cases, the seller will not be willing to negotiate the closing costs and you, as the buyer, need to be willing to either walk away or pay the expenses out of your own pocket.
The following are fees are standard in most closing settlements:
- Appraisal fees: These can range from $400-500 or more depending on the amount of work involved in the appraisal. In most cases, the loan originator requires the appraisal to determine the “true” value of the home.
- Loan Underwriting: These fees are associated with the lenders underwriter reviewing your home loan application. The fee for this typically starts at $499 and can go as high as $1,400.
- Credit Report: The bank will run a credit report before approving a loan and may charge between $25-50.
- Flood Plain Certification: Regardless of whether the home is located in a known flood plain, the certification is required by banks. The fee ranges from $8-30. If the home is in a flood plain, be prepared to purchase flood insurance.
- Tax Servicing Fee: The lender will set up a tax escrow account to monitor property taxes and pay them. The set up fee can cost anywhere from $65-100.
- Loan Processing Fee: This fee is similar to the underwriting fee but is considered the cost of processing the mortgage and brings with it its own fee. The fee for this can be a percentage of the mortgage amount or a flat rate fee.
- Incidental Fees: As a buyer you may have to pay prorated property taxes. The buyer will be required to purchase homeowners insurance and pay the first years fee up front.
- Loan Origination Fees: This fee is often 1% of the total amount of the loan and is charged on certain types of mortgages.
The buyer’s real estate agent or the title company are also good sources for information on the amount of fees and closing costs that may be required at the time the mortgage is signed. The real estate agent should make the buyer aware of these potential fees as they will need to be paid at the time of closing and may, in some cases, be substantial.
Disclaimer: Closing costs do vary based upon region and the providers selected. These fees are provided as information only and should not be used to determine your personal closing costs for your transaction. For specific closing costs related to your transaction, consult your real estate agent,lender, and/ or title company.
About the Author:
Richard Simon is the Co-Founder of Realty AZ Central. Realty AZ Central is a real estate marketplace based outside of Phoenix Arizona, offering a host of consumer real estate resources including home selling tips, mortgage lender referrals, and a real estate agent network.