Closing Costs
There are certain fees and taxes payable by a buyer when purchasing a property in the USA. Although they are known as completion expenses or completion costs they are more commonly known as closing costs. It is not possible to predict totally accurately at the outset what these may be as there are a number of variable factors that do not become totally clear until later. As a general guide you should allow a minimum of 3-5 percent of the purchase costs to cover these costs.
As the sales contract is negotiated for you, your broker will not only work to get the sales price you want, he will also work to limit the number of closing costs for which you will be responsible.
The broker will talk you through the closing costs, answer any questions you may have and will explain which costs are decreed by law to be yours and which are negotiable.
The figures contained in the information below are offered as a guide and in good faith at the time of writing, but should not be relied upon as to total accuracy. This information can be obtained from your broker.
Good Faith Estimate
Buyers will receive a 'Good Faith Estimate' of closing costs at the time the loan application is submitted by the lender. The estimate is based on the loan officers past experience and may not include all closing costs. Your broker will review the 'Good Faith Estimate' and answer questions and highlight missing costs and estimates, which they believe to be low.
An explanation of the standard closing costs
Loan origination fee
This covers the administration expenses in setting up and processing the loan/mortgage. Generally these total about 1-2 per cent of the total price, but can add up to 3 per cent of the amount you borrow. This will include charges for the appraisal, checking your credit rating and generally processing your loan application
Points (optional)
An option for the home buyer to pay points to lower the interest rate at which the loan will be repaid. Each point equals 1 per cent of the mortgage amount. For example: on a $150,000 loan, 1 point would equal $1,500.
Appraisal fee
The fee for having the house appraised (valued) may be incorporated into the closing costs, or, the lender may require payment at the time the loan application is submitted. This is included in the associated loan costs.
Title insurance
This policy protects both the buyer and the lender by insuring a clear chain of title. It therefore insures that the person who sells the house has the legal right to do so. This can range from a few hundred to a few thousand dollars depending on the sale price of your home. Virtually all property in the USA has title insurance and is required if you take out a mortgage.
Homeowners insurance
Varies from area to area and would be required as protection against flood or hurricane.
Inspections
Based on the purchase price and square footage, the range is $250 - $450 for home inspections and $60-$125 for termite inspections.
Document stamps on the deed
In Florida this is $7 for every $1000 of the purchase price and is a state tax when property is transferred from one owner to another.
Property taxes
This tax is usually 1.5-2 percent of the appraised value of your home as determined by the county property appraiser. They are annual fees and are not transactional. Your lender may require you to deposit a portion of the payment in escrow with them as to make sure you do not default on them.
Recording fees
A fee for recording the deed and mortgage for local records. You will typically be charged for 10 – 12 pages. In general in Florida you will pay in the region of $60.
Initiation fees
Condominiums and Home Owners Associations often charge these fees and vary depending on the neighbourhood.
Legal fees
A percentage normally of the purchase price. This is normally in the region of $750-$1000 on a $200,000 home.
Tax on mortgage
A percentage of the mortgage at the rate of $5.50 per $1,000 i.e. $550 for a $100,000 loan.
Home warrant insurance
Covers repairs for individual parts of the home for a certain length of time and costs in the region annually of $300.
Interest payment
Typically the buyer is required to pay interest on the mortgage loan to cover the time between the closing date and when the first mortgage payment period begins. For example: if closing is on the 15th May. Your first monthly payment begins to accrue interest on 1st June with your first mortgage payment due 1st July. At closing an interest payment covering the accrual period between 15th May and 31st May would be required.
Escrow account
At closing a payment may be required to fund the escrow account if the lender is paying home insurance, property taxes and/or other expenses out of the escrow account.
