Closing costs are pretty expensive these days and seem to go up every year. I guess with more government intervention, closing costs go up. I look at closing costs as being comprised of two sets of costs. One set of closing costs is what I tell people are junk costs and really, that’s what they are. They are all the costs you have to pay to get the loan done, or to close on your home, and you will never see that money again. These include the attorney fees, title fees, survey, insurance, flood certification, appraisal, and home inspection. These junk costs are a big part of the overall closing costs.
The other set of closing costs are what we call prepaids and reserves. Prepaids and reserves are for your property taxes and homeowner’s insurance. The lender takes escrows in order to pay these for you. At closing, they take a couple months worth of property taxes and a couple months worth of homeowner’s insurance. Every month as part of your mortgage payment, you pay one month worth of property taxes and one month worth of insurance, and then they use the amount from escrow to pay these bills when they are due. Those are prepaids and reserves. You also prepay on your mortgage when you close, so there’s interest due at closing, too. Together, these comprise the second set of closing costs.
Altogether, they can be very costly. Prospective buyers should talk to a mortgage adviser before they start looking for a home so they’ll know exactly what to expect for closing costs. Although the amount will not be exact, you can get a rough estimate so you can save for your down payment and closing costs. If you’re a little short, we can work around that by building a seller credit for closing costs in to the purchase price. There are multiple ways, but that’s just one example. A lot goes into the closing costs, and as the mortgage advisor, it’s my job to tell you all of your costs with a very accurate, if not on the high side, estimate of how much money you’ll need to bring to the closing table.
You can get approximations early on in the process, but I can give the most accurate estimate once you have a house under contract. Once I know the price of your home, I will sit down and go through every single possible fee that you could face for a closing cost. Some of them are what we call prepaids, as discussed above, that are paid outside of closing costs. You might also pay for the appraisal or home inspection prior to closing, but the rest of the costs get paid at closing. By the end of our meeting, you will feel comfortable knowing what you need to have at closing, and can make sure your finances are in order.
People really get surprised when I tell them how much closing costs are. I think they are a little shocked. Like I said, everybody gets a piece of the action with the new government guidelines. There are new appraisal guidelines that happened over the last couple of years, so we order appraisals from a third party management company rather than hiring the appraiser directly. So, now we’re going through a management company, and management companies cost money. The buyers are paying for that through an increase in appraisal prices. Title insurance has gone up in price. Attorneys are doing more with each file, so there fees have gone up, and rightly so. It gets more expensive each year to buy a house. The least I can do is get you an accurate picture of what your closing costs are going to look like. Call or email me today to discuss your situation!
