You did it! You finally bought your very own home. Well, almost. The closing is just a week away and all is going well. All you need to do is make sure you have everything everyone is asking for on closing day. But you’re a little confused because your attorney and the agents and your lender keep tossing terms about as casually as breathing, all the while expecting you to understand exactly what is going on and how it affects you. You’re going to sign things that say this is so after all!
So what, exactly, are “closing costs” anyway? Is that the price of a closing? Well, kind of. But it’s not like you say, “Hey that looks like a nice closing, I’ll take one of those please.” Closing costs for each buyer and each transaction will always be unique based on their particular financial circumstances and the agreed-upon terms of the deal as negotiated and declared in the signed Purchase & Sale Agreement. Sound a little overwhelming? Not to worry, that’s what this blog is here for.
First, it is indeed true and accurate to say that “closing costs” are particular amounts of money that you (the buyer) will be expected to pay on “closing day” -the day the place you are buying officially transfers ownership (by way of recording in the registry of deeds) to you from the seller.
These mysterious “costs” often include one or more of the following: attorney’s fees, title insurance, recording fees, loan origination fees and/or discount points, prepayments of real estate taxes and insurance premiums, appraisal fee, credit report cost, and underwriting fees. All in all, closing costs typically end up ranging from about 2% to 6% of the loan amount depending on the area.
There is no set list of items nor are there fixed dollar amounts, but here is one typical collection of closing costs to use as a general guideline:
- Attorney Fees (for closing, title exam, and document preparation): $500-$1000 +/-
- Premium for title insurance, if needed
- Discount Points (1 point=1% of loan, etc.)
- Appraisal fee, credit report fee
- Property Tax Reserves
- Prepaid interest
- Recording Fee
- Tax Stamps ($4.59 per $1000)
Sometimes the seller will contribute to these costs as part of the deal. Always check with your lender for final closing cost numbers and details -they will give you an estimate early on (called a Good Faith Estimate and now required by law) and then the actual numbers usually a day or two before your closing.
So there you have it. Closing costs are not quite as scary as one might think! The important thing to remember is to ask questions early and often. Between your attorney, your lender, and your real estate agent, you should have a team of experienced professionals who can make sure you’re prepared and knowledgeable at every turn. Don’t hesitate to ask about each and every term mentioned in this blog and anything else you come across on the way to closing. There is no question too small! The closing officer will also walk you through the Settlement Statement on closing day –this form itemizes all the costs being paid by the sellers and the buyers, so take your time reading through it and ask questions about anything that you don’t recognize or understand. Finally, the closing officer will ask for a check for your down payment and closing costs. This is it!
You are now not only a homeowner, but one who understands closing cost lingo like it’s nobody’s business.
Once again, thank you for tuning into the Marston Beacon Hill real estate blog. Do not hesitate to get in touch with any questions!
Until next time,
Annie Bergen and the Marston Beacon Hill Team