There’s a lot going on when you’re buying a home with a loan, and closing costs can sometimes hit you unexpectedly. In addition to your down payment, you can count on anywhere from one- to three percent in various fees when it comes time to close your transaction.
If you’re paying points, the closing costs will be on the higher end of that range.
Here’s a rundown on the major types of closing costs you’ll see when you buy your home:
Title insurance. This is pricey, but not something you want to bypass. In fact, lenders require that you have title insurance. This basically protects you in the event that someone makes an ownership claim on the property in the future, or a lien against the house pops up.
Appraisal fee. The lender will require that an independent appraiser verifies that the value of the property is worth what you’re paying. The buyer typically pays for the appraisal.
Pro-rated property taxes and HOA dues. The escrow officer will calculate how much you’ll pay toward property taxes within the current tax period based on when you take ownership. Same goes for HOA dues; you’ll pay from the day you close to the end of a given month; the seller doesn’t pick up the tab just because he or she has already paid current property taxes or dues.
Insurance. If you’re buying a condo, you’ll probably be buying what’s called HO-6/walls-in coverage, which is several hundred dollars per year.
Private mortgage insurance (PMI). If you’re putting less than 20% down, lenders may require PMI. You’ll pay an agreed upon monthly fee until your loan-to-value (LTV) ratio hits 80%.
Escrow fees. These range from couriers to deed recording, to notary services and the actual fee the title company charges for its services.