Homebuying tends to be one of the biggest expenses a person or couple will make in their lives, and the cost of the home itself tends to make up the biggest portion of that expense. However, it’s not the only cost paid.
Closing costs are part of the package, and represent a collection of charges, fees, taxes and expenses that also have to be addressed to make the property transaction a success. Typically, this portion of the transaction can range anywhere from 2 to 5 percent of the total sales cost, and the expense varies on whether the buyer or seller is responsible for it. No surprise, it can be a bit of a confusing wake-up call for a first-time homebuyer.
Guidance and What to Expect
Buyers in most cases have the majority of closing costs, but technically they are negotiable. A mortgage broker makes for an idea help and guidance, easily walking a buyer through all the expenses, why it is charged, what to expect and when the charge will come due in the transaction.
Expense Types
Typical expenses include the following categories:
- Credit & Application Charges – This is a small cost, but it covers the credit history pull on the buyer as well as a service charge from the lender for the application review. The buyer pays this.
- Escrow fees – These are costs to cover the services of the escrow agent and escrow insurance while the home title is transferring from the seller to the buyer. The buyer typically pays for these, but it can be negotiable.
- Title fees – A government fee to process the property title change. It covers a title search to make sure there are no legal conflicts with the transaction. A buyer usually pays this, but again it can be negotiable. Title insurance can be included to protect you from title processing mistakes.
- Transfer tax – This is a government charge for the shift of the property from one owner to another. Who covers the tax can be negotiated.
- Origination Fee – This charge is a loan creation expense and is placed on every large consumer loan as the cost of service to the consumer. There is notable variance from one lender to another, so buyers should window-shop a bit where they can.
- Appraisal Fee – Lenders require an appraisal and buyers typically pai for this on the home they want to buy. It can be negotiable though, for a motivated seller. The fee usually costs a few hundred dollars and the buyer typically pays otherwise.
- Mortgage Points – This is a buy-down of the home loan interest up front. The buyer pays this to lower their overall home loan cost when applying for the mortgage.
- Home Inspection – This is optional, but it’s a good idea to pay. The charge covers a professional home inspector who works for the buyer and confirms the home is everything represented in terms of construction and safety. A typical home inspection can run as much as $500.
- Recording expenses – a small fee for documentation with the county or jurisdiction.
- Proration of HOA and property taxes/fees – This is typically paid for by the buyer, but a seller could cover it to move a sale quickly.
One last category involves concessions. While not a closing cost per se, these are repairs or adjustments a seller can make or take care of to move a purchase to completion.
Rob’s Mortgage Loans as a mortgage broker for example, can work through all of these expenses for a buyer to help close a transaction successfully. Mortgage brokers are also adept at helping buyers match up with the best loan package that addresses many of the loan closing costs, including absorbing those costs into the loan itself as well versus having to pay them up front in cash. The expertise can be incredibly valuable for first-time homebuyers in Colorado.
