When you purchase a home, you’ll need to be prepared to manage not only the down payment, but closing costs as well. We’ll work to help you understand what closing costs are, why they are due, and even explore options on how to reduce your cash outlay. It’s a good idea to review what happens ahead of time so you know what to expect.
How to estimate your closing costs
Closing costs vary based on the price of the home, whether you have an impound account, what you negotiated with the seller, and even what rate you choose on the loan. You may have seen estimates at between 1.5%-2.0% of the purchase price. However, there is no one set way to estimate how much could be due. This is why it is important to understand why the money is due. Once you understand what could be due and why we can help you create a plan that makes sense for you.
Prepaid Expenses
Prepaid expenses are expenses associated with the cost of owning a home that you pay in advance at closing. These costs can be paid by a seller or lender credit.
- Impound account: If you obtain an impound account you will fund it in advance. Depending on the time of year, this may represent the largest portion of funds due, besides your down payment.
- Property taxes: At closing, the buyer typically pays the city and county property taxes due from the date of closing through the end of the tax year.
- HOA assessments: If you’re buying in a development with a homeowners association (HOA) that requires monthly fees, 1-2 mos worth may be due upfront at closing.
- Hazard Insurance (Homeowner’s Insurance): You will select a home insurance policy and it will be due in full for the year at closing.
- Interest – You will likely have a portion of a month’s interest due at closing.
Closing Costs
Closing costs represents the portion of money that is due for services rendered, municipal taxes, and transfer fees. These costs can be paid by a seller or lender credit.
- Title Insurance: Policies for both the buyer and lender are calculated based on the purchase price. It is customary in CA for the buyer to pay for Lender Policy and the seller to pay for the Owner’s policy. Your purchase agreement will designate it.
- Escrow fees: This fee goes to the escrow agent who helps you close. It can vary based on the purchase price of the home. This includes necessary government filing fees, escrow fees, notary fees and other expenses related to transferring the deed. The cost varies based on the price of the home. Your purchase agreement with the seller will designate who pays for what.
- Lender fees: These include fees for processing and underwriting the loan. Underwriting is part of the loan approval process
- HOA Certification/Transfer fees: These are charged by the HOA. These can be as little as $100 or as high as $700.
- Appraisal and Inspection fees: The appraisal is used to help confirm the fair market value of your home and usually runs between $500 and $700. A home inspection will not be required for a loan, but you should plan on obtaining one. They run from $300 to $1000. *These are the only fees paid up-front. All else is paid at closing
How to estimate your money due to close?
Once you understand how much will likely be due we can discuss how to pay for it. Some clients prefer to use their own funds. If down payment funds might be tight, we can look for alternative options. For example, obtaining a seller credit, a lender credit, or even doing a lower down payment on the home (maybe additional link on credits?).
Contact us with any questions you may have about your closing costs, we’re here to help!