? What are closing costs? How much are they?

Closing costs are fees related directly to the purchase of the home. They vary depending on the price of the home and include lender, title and recording fees. They also include other items such as appraisals, survey and inspections. In addition, buyers pay some prepaid items at closing. Prepaid items are payments at closing for items that associated with the purchase/loan going forward, but are paid on closing day.

• interest on the loan from the day of closing until the next mortgage payment
• 2-3 months of real estate taxes to fund the escrow account
• 1 year homeowner’s insurance
• 2-3 months of homeowner’s insurance to fund the escrow account

In the past, closing costs/prepaid times were usually about 3% of the home purchase. However, recent changes in lending practices have resulted in increased fees especially for buyers that are putting down less than 20% of the purchase price or have credit scores below 740. Buyers purchasing a home in the $200,000 price range can now expect to pay $3500-4500 in addition to their down payment. For buyers on a tight budget, these fees are often paid by the seller. Basically, buyers agree to a higher purchase price and sellers agree to pay closing costs/prepaid items. For example, a buyer that would have agreed to a $200,000 purchase price, may decide to offer $204,000 with the seller paying $4,000 in closing costs/fees. The buyer ends up with a slightly higher monthly mortgage payment (approximately $6 per month for every $1000 borrowed, equaling $24 more per month) and a slightly higher down payment (only $200 more if the buyer borrowed $204,000 instead of $200,000 with a 5% down payment). For buyers that are tight on cash, the end result is that buyers don’t have to come up with much more than their down payment while seller’s still get their price.