Buyers Guide

If you’re a first-time home buyer, you may not realize that your down payment isn’t the only money you’ll have to come up with when you buy a home. At the close of the sale of your new home, when you sit down to sign all the necessary documents, you’ll need to pay several fees, also known as “settlement” or “closing” costs.

You may be wondering if home buyers are solely responsible for paying closing costs. In fact, when it comes to who pays closing costs in a real estate transaction, the buyer and seller typically have separate fees. As the buyer, however, you may be able to negotiate to have the seller pay some of these fees. Ask your real estate agent for guidance.

These costs are above and beyond the purchase price of your home and can include loan fees, property taxes, insurance premiums, inspection reports, home warranty, and more. Buyer closing costs can vary depending on several factors, including the price of your home, the area where you live (or are moving to), your lender, and the type of loan you get. In some regions and certain cases, you can negotiate for the seller to pay some of the costs.

A closing cost calculator can also be a helpful tool to use when you’re asking, how much are closing costs going to be? This type of calculator can give you estimated costs based on the area where you will be buying a home. The quickest way to find this tool is to search online, but most mortgage websites will also have a free closing cost calculator you can use

The best estimate for closing costs, however, will likely come from your lender. When you apply for a loan, the lender is required by law to provide you with a loan estimate that lists the estimated closing costs. This loan estimate, also called a “Good Faith Estimate,” will list the loan terms and estimated costs, and also show what fees you can and cannot shop for. For example, you can choose the title company but you cannot select the appraiser (your lender chooses the appraiser).

Just before the close of the sale, the lender is required to give you a form that discloses the actual closing costs so that you can compare the original estimated costs. This way you can see if anything has changed or if a new fee has been added.

Here are the typical buyer closing costs:

If you have less money to use as a down payment, there are various government loan programs, such as FHA, VA, and USDA, that also have their own associated fees. You can shop around for the best loan to suit your finances and goals.

Here are some of the typical fees you will pay for a conventional (non-government) mortgage loan:

• Application fee – A fee that a lender may charge to process your mortgage application.
• Credit report fee – The fee charged by a lender to obtain your credit score.
• Home appraisal fee – A fee for an independent appraiser to assess the value of the property you are buying. The appraiser is usually chosen by the lender.
• Points (discount points) – Fees you can pay upfront to get a lower interest rate on your loan.
• Underwriting or origination fee – A fee the lender charges for evaluating your loan application to determine if you’ll be able to repay the loan.
• Private mortgage insurance – If you have a conventional loan and put down less than 20% of the price of your home as a down payment, your lender will require you to have private mortgage insurance (PMI). This protects the lender against a default on the loan. When you reach 20% equity on your home loan, this insurance is no longer required.

• Upfront mortgage insurance premium (UFMIP) – This insurance premium fee is required for FHA loans and is paid at closing.
• Annual mortgage insurance premium (MIP) – This is an ongoing insurance premium that you will pay for your FHA loan.

When you buy a home, there are different types of insurance your lender may require as well as other insurance you should buy.

There are two types of title insurance policies: one for the lender and one for the owner (buyer).

• Lender’s title insurance policy
  Your lender will require you to purchase a title insurance policy to protect their interest in the property until your loan is paid or you refinance.
• Owner’s title insurance policy
  The owner’s policy is optional but is strongly recommended as it protects your ownership rights for as long as you own the home.

Homeowners insurance protects your home and personal property from damages due to fire, storms, and severe weather, as well as vandalism, accidents, and more.

Your lender will require proof of homeowners insurance before they will fund your loan. Many lenders will also require you to prepay the first year of homeowners insurance at the closing. After that, your homeowners insurance is often part of a mortgage escrow account.

If your down payment on a conventional loan is less than 20%, your lender will require private mortgage insurance (PMI). If you get an FHA loan, you will pay different mortgage insurance premiums, one at close (UFMIP) and one annually (MIP), that are just for FHA loans.

Your property taxes are based on your home’s value and the tax rate set by your county or city. Property tax is often paid annually or semi-annually, so what you owe at closing will vary depending on when the taxes were paid or are due. Going forward, your property taxes are often part of a mortgage escrow account.

These fees are paid to your local government agency, typically the county, for registering the sale of your home. The recording of the sale then becomes part of the public record. Depending on local government requirements, you may also pay fees for recording your deed and your mortgage.

This fee is paid to the person who handles the closing process, such as a title or escrow company, or if your state requires it, an attorney. In many parts of the country, this fee is part of the title services.

In many states, especially in the south and on the east coast, you are required to hire a real estate attorney when buying a home. In the west, escrow or title agents usually handle the closing process (see Closing, Settlement, or Escrow Fee).

Some regions and government-issued loans require a pest inspection when you buy a home. This fee covers the inspection of your home for pests such as termites, as well as damage from pests, including dry rot.

While not required by lenders, a thorough home inspection is an essential part of the purchase process. You get to choose a professional inspector to examine your home. The inspector will provide you with a detailed report that includes the age and condition of your home’s systems and appliances and will let you know if anything needs needed maintenance or repairs.

A home warranty for home buyers offers protection for many home appliances and systems. Unlike homeowners insurance, which covers damages or losses that hopefully will never happen (such as fire, theft, or storm damage), a home warranty protects systems and major appliances that will fail over time—often unexpectedly. As a home buyer, you get access to special home warranty coverage and pricing just for buyers—plus, you can add this valuable protection for up to 60 days after closing. It’s easy to get a quick quote for a home buyer’s warranty in your area.

source: First American Home Warranty