Why Your Closing Costs May Surprise You

According to this report from ClosingCorp, more than 50% of homebuyers are surprised by their closing costs. Closing costs, or the one-time fees that are paid at the end of a real estate transaction, can add up to 2-5% of the total loan amount. And while the following information and figures can vary from state to state, it’s important to be aware of additional expenses that come with buying a new home.

Lender and Third Party Fees 

Lender and broker fees come from mortgage lenders. These fees cover credit reports, applications, loan originations, and broker fees. While these fees can vary from lender to lender, by law, they cannot exceed 3% of the total loan amount. 

Third party fees are charged on nearly all loans. These include well-known costs such as property taxes, homeowner’s insurance, title transfer fees, and more. Lenders are required to disclose all third-party fees, and many will include those third-party costs in their estimations and prequalification calculators. 

However, if you are looking to anticipate the additional costs, here are some common lender and third party fees to be aware of:

• Application Fee … $925-1,500
• Appraisal Fee … $400-1,000
• Appraisal Reinspection Fee (Typically for Older Homes) … $175
• Credit Report Fee … $150-250
• Flood Certification Fee … ~$11
• Tax Service Fee … ~$78 

Legal, Title, and Government Fees 

Additionally, your lender will outline potential attorney fees, determine if a survey fee is required, and amount of taxes due to municipality or seller as you prepare to purchase a property. 

Some states require a lawyer to be present during closing transactions. Attorney fees, paired with other government-related closing fees, can add up quickly. While these fees can vary widely based on your location and individual circumstances, it’s important to keep the following expenses in mind: 

• Attorney Fees … $1,000- 2,000 
• Title Insurance … 0.5% of Purchase Price
• Survey (Optional) … $800- 2,000
• Settlement Agent Fee … $400- 600
• Recording Fee … $300- 500
• Realty Transfer Tax … Prices may vary
• Mansion Tax (NJ/NY, $1M+) … 1% of Purchase Price

Prepaid Items and Escrows 

You may be prepared to pay taxes when buying a home, but many new homeowners are surprised by their pre-paid tax expenses. Homebuyers are typically responsible for two to six months of taxes at closing. Some of these taxes go towards the city and county, while others go to an escrow account or to the seller for what they may have paid in advance. 

You may also have to pay a transfer tax, which covers the fee for transferring property ownership from one party to another.

It’s important to recognize that these amounts vary greatly depending on location, but a good rule of thumb is to prepare five to six months of taxes when closing:

• Prepaid Taxes … 2- 6 Months of Taxes
• Home Insurance … $800- 1,800
• Flood Insurance (if applicable) … $600- 3,600
• Per Diem Interest … Determined by days remaining in month you close
• Private Mortgage Insurance … 2- 3 Months (If Applicable) 

Additional Fees

HOA fees, inspections, or condo association charges may not be outlined to you upfront, but it’s still important to remain aware of these potentially hidden fees. 

Consult your realtor and/ or a licensed home inspector to learn more about these fees and how they may apply to you.