Closing Costs 101

In my 11+ years of experience as a Realtor here in the Triangle real estate market, I have helped hundreds of families purchase a new home.  All of these former clients were different with different knowledge about the real estate market and different experiences.  Some of them were first time home buyers and others had experience buying several properties in the past.  Every experience was very different based on the property, the buyer and the housing market that they were shopping in.  One of the things that was very consistent however in all the transactions was the question about Closing Costs.

I would always find that buyers would ask 3 main questions……….

1- What are all the closing costs?

2- How much will my closing costs be?

3- Does my deposit go toward closing costs or my down payment?

1- A buyer's Costs Associated with Closing (Closing Costs) are typically made up from 3 areas…….Lender/Loan Fees, Attorney Settlement Fees, Taxes and Insurance (Escrows).  

Each loan is different and depending on the type of loan and who you are getting a loan with, their fees and costs of the loan vary.  Usually you will have an origination and application fee along with appraisal fees and credit reporting.   

Attorneys charge fees for their services including title work, documentation prep and recording fees as well as the costs of the title insurance policy.

Also collected at the closing is your first year's payment for homeowners insurance so the lender knows you have insurance coverage from day 1.  Alongside the first year's insurance payment, your Escrow account gets started.  This is the lender's way of starting an account for you with several months worth of taxes and insurance payments made upfront so when the bill comes due, your mortgage company has the funds in the account to take care of the bill.

There may be a few other ancillary fees in a closing but these are the main considerations for pretty much all mortgage closings.

2-Like every answer in a real estate transaction, how much your closing costs are will depend on when you close during the month and what type of loan you are getting.

When you close on a home loan, you are going to pay interest on the loan for the month you are closing in.  If you close early in the month, you will pay more interest at closing for the remainder of the month.  If you close later in the month, then the interest charged by the lender will be less since there are less days in the month remaining.  

Different loans come with different fees and costs but a good rule of thumb for estimating your costs associated with closing is that they generally run around 1.5% - 2% of the cost of the home.  For example, if you are buying a $500,000 home, then you can guesstimate that the closing costs will run you around $7500 - $10,000.  Again, that is a rough estimate for budgeting purposes but your lender will always be able to give you a much better and accurate estimate.

3- My favorite way to explain where the money goes in a transaction is to make it as simple as possible.  Instead of everything having its own category, lets just see the transaction as 2 categories, Credits & Costs

Credits - Loan, deposits, concessions from the seller,.......

Costs - Price of the house and all of the fees and escrow items 

                           collected  for closing

For a clear understanding, just add up all your credits and add up all of your costs and the difference between the two numbers is the money that you will need to bring to closing in order to purchase the home (Cash to Close).

Real Estate is not rocket science but it does take some knowledge, experience and skill.  I really enjoy educating buyers on the different aspects of the real estate transaction and helping paint a picture in their mind of what is happening or going to happen.  

My team at the Kima Real Estate Group would love an opportunity to help you with your real estate journey.  Give us a call today (919-300-5421) or find us online at WelcomeToCarolina.com