Welcome Home: Understanding Closing Costs

When moving to a home, costs tend to add up rather quickly.  More than likely you will have several items that will need your attention right away such as replacing carpet or updating appliances.  Then there are the moving costs to consider.  A final thing some buyers fail to fully plan for is closing costs.

When buying a home the title of the property will be transferred from the seller to the buyer which is called the closing.  The fees that need to be paid at that time are considered closing costs.  Closing costs vary widely based on a number of factors such as where you live and the property you buy. To give you a better idea of what the closing costs could be, you will receive a loan estimate within three business days of receiving your completed loan application.  Then three days before closing, you will receive a closing disclosure statement that will outline the closing costs.

How much are closing costs going to run?
If we are discussing the costs in general terms, anyone buying a home needs to put aside 2 to 5 percent of the loan for closing cost fees. So if your new home is $200,000 and you plan to put down 20%, setting aside $8000 for closing costs should do the trick!

Below is a guide to the various items that are typically considered closing costs:

  • Application Fee – Covers the cost to process the application & is usually around $150.
  • Bank Attorney Fee – Covers the cost for an attorney to review the closing documents & can range from $600 – $900.
  • Appraisal – Confirms the fair market value of the home & is usually around $400.
  • Credit Report Fee – A credit report is pulled to get your credit history and score.  The fee is usually around $16 for an individual $38 for a couple.
  • Flood Determination or Life of Loan Coverage – This fee of about $15 is paid to determine if your new home is located within a flood zone. 
  • Homeowners Insurance – The first year of your homeowner’s insurance coverage is often paid at the time of closing.
  • Lender’s Policy Title Insurance / Title Company Title Search – Paid to the title company for doing a thorough search of the property’s records to ensure that no one else has a claim to the property.  It also assures the lender that you own the home and the lender’s mortgage is a valid lien.
  • Prepaid Interest – While not really considered a closing cost, you will be asked to pay the interest that will accrue from the date of the closing to the end of the month.
  • Private Mortgage Insurance (PMI) – If you’re making a down payment that’s less than 20% of the home’s purchase price, you’ll be asked to pay PMI.
  • Property Tax – If you are going to pay your property taxes outright, then they will need to be paid at closing.  If you are going to have an escrow account, then the property tax will be part of the escrow deposit (detailed below).  Sometimes there will be tax adjustments that need to be paid to the seller. 
  • Recording Fees – A fee charged by the local government to record the loan & is generally around $400.
  • Tax Service Fee – A service fee for paying tax and is generally $79.
  • Transfer Tax –  NY State mortgage tax varies depending on county and loan amount Occasionally, on purchase transactions, there may be a deed transfer tax as well, however, it is commonly paid by the seller.
  • Underwriting Fee – A fee that covers the cost of researching whether or not to approve you for the loan & is $200.

Sometimes there are other fees required at closing.  A description of them are listed below:

  • Escrow Deposit for Property Taxes and Mortgage Insurance – This depends on the specifics of the loan.  If you are going to have an escrow account, you are often asked to put down two months property tax and mortgage insurance at closing.
  • Home Inspection – While generally not required, sometimes a home inspection is requested.  A home inspection verifies the condition of the home and indicates any repairs that may be needed prior to closing.
  • Owner’s Policy Title Insurance – Some attorneys request this insurance policy to protect you in the event someone challenges your ownership of the home.
  • Origination Fee – This fee is for loans on homes that are being constructed or purchased as an investment.
  • Pest Inspection – Is only required in there is a note in the appraisal that indicates a concern of termites or dry rot.
  • Survey Fee– In most cases is only required for the construction of a brand new home. 

Are you thinking about purchasing a home?
Wallkill Valley Federal Savings and Loan, we would be happy to sit down with you and walk you through the entire loan process from pre-qualification to closing. Cyndi O’Brien (NMLS# 754577) and Rick Farrow (NMLS# 800674) are available to answer questions and help you get started.  To reach Cyndi O’Brien, call 845-946-6635 or 845-895-2051 ext 431.  For Rick Farrow, call 845-527-2090 or 845-895-2051 ext 426.

Wallkill Valley Federal Savings & Loan is an Equal Opportunity Housing Lender (NMLS#404992).