When you are ready to purchase a home, it is necessary to have some cash assets ready to cover the expenses that cannot be added to your mortgage. A portion of these expenses that you’ll need to pay in cash are the closing costs. While many first time home buyers may expect from watching real estate shows that they can convince the seller to cover the out-of-pocket costs, this is not always the case. It is essential that all buyers have a general understanding of what the various closing costs are so they can be prepared. Typically, it is a good idea for buyers to save at least 1.5% to 2.5% of the purchase price of a home for closing. Below, we’ve outlined some of the typical closing costs you’ll be responsible for paying only once; when you close on your house.
Non-Recurring Closing Costs
Non-recurring closing costs are those that you will pay once when you close upon your home, but you will not have to worry about them again until you choose to make another purchase. They can include the following:
- Home inspection – This is one of the first closing costs you will have to pay as a buyer. If you make an offer on a home conditional upon a satisfying inspection, you typically have under a week from the offer date to have it completed. This is a cost you as a buyer have to pay even if you choose to withdraw your offer because you are not happy with the results of the inspection.
- Title insurance – This is insurance that compensates for any losses that are a result of a defective title or liens on the property that should have been revealed at the time of purchases. Losses covered include any legal fees paid to rectify related issues. Title insurance can be taken in lieu of a title search which is much more pricey and in many cases, unnecessary. A real estate lawyer will advise buyers if a title search is needed rather than title insurance.
- Appraisal fee – Before a mortgage lender will provide you a loan, they complete a property appraisal to ensure that your home is worth at least as much as they are going to lend you. Often today this can be completed without surveying the property as banks can look at recent valuations in the area online, but the fee does still apply and the cost can vary depending upon the appraisal method used.
- Attorney fees – Your attorney is the one that processes all of the necessary paperwork, registers the deed, deals with the seller’s lawyer, processes information for the bank, and makes sure all necessary money gets to the appropriate bodies. For all this, a real estate lawyer charges a flat fee for his or her services.
- Escrow fees – Some mortgage lenders may require that you put the costs related to the mortgage payment, property taxes and utilities into an account to be paid by them on a monthly basis. This helps them ensure that their investment is protected because payments are made. At closing, you may be required to deposit escrow fees for one or more months of expenses.
- Land transfer fees – Most cities or counties (or both) require that you pay a fee to ‘transfer’ the land from the seller to the buyer. The specific costs and requirements vary greatly across the country but typically apply.
- Various administrative fees – LIke a buyer you may need to pay the fees to record the sale, fees for document preparation, and any charges that surface from the need to use wire transfer or a courier to get the transaction completed.