A lot of planning is involved when you are buying a home. Part of this is making sure you have put enough money aside for things like a downpayment, the costs of running a home, and cover closing costs. A lot of homebuyers will get caught out by these expenses if they haven't budgeted and made a plan for what is needed. Your lender or broker should go over closing costs with you when applying for a mortgage. Our advice is to set aside 2% to 5% of the home's purchase price for the closing costs. Some fees can be negotiated. Our Atlanta mortgage lender team has compiled some of the main closing costs that you can expect to pay when buying a home.
Types of Closing Costs
There are 3 types of closing costs that you will pay when buying a home: lender, title, and prepaid fees.
Lender Fees
Some lenders will give you a breakdown of their fees, where others will give you a total origination fee. This can include appraisal costs, courier fees, processing fees, administrative fees, credit checks, underwriting fees, and transfer taxes.
Title Fees
70% of the fees that you pay are title fees. This includes title insurance, title search costs, and settlement services.
Prepaid Costs
The majority of lenders will require you to set up an escrow account for collecting property taxes and homeowners insurance. In some cases, if you have made a downpayment of 20% or more, buyers can be exempt. At closing, buyers pay a year of homeowners insurance as well as 2 months 6 months worth of property taxes.
Appraisal Fees
The majority of lenders will require you to have an appraisal carried out of the home before they start the lending process. It's their insurance than the value of the home is concurrent with figures in the housing market. Some lenders will take responsibility for the fee, but it is usually between $300 to $400.
Inspection Fees
While an inspection isn't a requirement, it shouldn't be eliminated to save money on closing costs, as some buyers will do. This is your insurance that there aren't issues with the property that were not listed. Some repairs will be obvious to most people, but a licensed inspector knows how to look for other issues, such as damage to the foundation of the home, problems with pipes and plumbing, or damage to the roof. If there are issues that were not covered in the home's listing, this can give you some leverage when it comes to negotiating the price. The seller can either make the repairs before selling to you or knock off some money on the listing price to cover the repairs that you will have to make. Not having an inspection done can have you buying a home that becomes a money pit of issues. Inspection fees can average $500.
Legal Fees
Creating a sales contract between a buyer and seller requires a lawyer who will make sure all of the paperwork is legal and in order. It protects the rights of the buyer. Lawyers' fees can run between $500 to $1,000.
Land Survey Fee
Another requirement is having a land survey done. This is used to document the property's boundaries, which will lay out where your property line ends and your neighbors begin. A land survey can cost anywhere between $1,000 and $2,000.
Property Insurance
Having property insurance is important because it will protect your home and/or the contents of your home from things like damage and theft. The amount you pay will depend on the type of insurance that you choose. Some will ensure the entire home and some will just ensure the contents of the home. Property insurance costs between $800 to $1,000 per year.
Private Mortgage Insurance
PMI is different from property insurance. It is a requirement for those who make a downpayment of less than 20% and is there to protect the lender if you should default on your mortgage payments. How much PMI you pay will depend on the amount that you are putting down for the downpayment. It's generally a couple of thousand dollars and can be factored into your monthly mortgage repayments.
Land Transfer Tax
Fees for land transfer tend to be the biggest part of the closing costs, usually 1.5% of the cost of the home. Most lenders will want you to have proof that you can cover this amount as you need for down payments. You only pay this fee if you are purchasing land with the home and the amount is based on both the cost of the home and whether the home is in a municipal or provincial area.
The advice of our Atlanta mortgage lender team is to start putting money for closing costs aside a year prior to buying a home. It will put you in a better position at closing. If you have questions about mortgage and closing fees, give our team a call today!