What Will Your Closing Costs Be

Home inspections are an evaluation of a home’s condition by a trained expert. During a home inspection, a qualified inspector takes an in-depth and impartial look at the property you plan to buy. The cost for home inspections is mainly based on the size of the home. While a typical inspection will run around $350-$400 inspections overall can range from $285 to $1000. The inspector will:

• • • Evaluate the physical condition: the structure, construction, and mechanical systems.
    • Identify items that should be repaired or replaced.
    • Estimate the remaining useful life of the major systems (such as electrical, plumbing, heating, air conditioning), equipment, structure, and finishes.

Having a home inspection completed could be the best money you will ever spend. You should have a home inspection done even with new construction. In Fact. it is probably a good idea to have inspections completed during construction stage if you are having the home built.

Radon Testing is done to ensure that the radon levels in the home are at or below accepted EPA levels. Although you cannot see, smell, or taste radon when you breathe air containing radon, per the EPA, you increase your risk of getting lung cancer. In fact, the Surgeon General of the United States has warned that radon is the second leading cause of lung cancer in the United States today. Plus, if you smoke and your home has high radon levels, your risk of lung cancer is especially high. The EPA recommends testing for Radon up to the 3rd floor in properties, including in high rise condominiums.

The cost for the testing itself ranges from $100-$150 and is typically paid for at the time of testing. Mitch also normally asks Sellers to pay for Radon mitigation which can cost an additional $800-$3000. However, just like purchase price the buyer’s willingness to mitigate radon is subject to negotiation.

Mitch always makes sure if radon is an issue and the seller is unwilling or unable to mitigate that you as a buyer can walk away with your earnest money if you do not want to mitigate at your own expense.

Termite Inspections are done to ensure that there is not active termite populations or substantial past termite damage that could result in a major expense to repair.

WHAT IS A HOME WARRANTY

Many Buyers believe that Sellers delay maintenance when they know they will be selling a home. Since home buyers hope to minimize the financial impact after closing related to malfunctions with the components in their new home most will ask the Seller to pay for a home warranty. First time home buyers with no experience maintaining a home may consider having a home warranty a critical piece of their offer on a property.

Home Warranty plans provide for specific types of coverage, be sure to fully evaluate the coverage in each policy before selecting a plan.

• • • If a home system or appliance breaks or stops working, the homeowner calls the home warranty company.
    • The home warranty company calls a provider with which it has a business arrangement.
    • The specific provider calls the homeowner to make an appointment.
    • The provider fixes the problem. If an appliance is malfunctioning and cannot be repaired, depending on contract coverage, the home warranty company will pay to replace and install the appliance.
    • The homeowner pays a small deductible usually $75- $100.

Home warranty plans will run $350 - $600 with most plans costing $400 to $500. Most Buyers will ask for the Seller to pay for the plan but like many things, this is 100% negotiable. If the Seller feels they are selling the home for less than they expected they will generally try to exclude this expense.

What Is Homeowner's Insurance

While lenders will require that you arrange for homeowner's insurance coverage (sometimes called hazard insurance) when there is a mortgage involved it is strongly suggested even with cash sales.

This insurance protects against physical damage to the home by the fire, wind, vandalism, and other causes, and ensures that your, and any lender's investment, in the property will be secured even if the house is destroyed.

If you are buying a condominium, a portion of the hazard insurance may be part of your monthly condominium fee. But you should still secure insurance coverage for the portion of the Condo not covered by the association along with covering your home furnishings and valuables. Most lenders want to see you carry coverage on at least 20% of the purchase price. But keep in mind that with condos you, as the owner, need to typically insure from the drywall on the ceiling down, from the flooring up, and from the drywall in from the studs. This means your insurance policy should cover all wall coverings, flooring, lighting, appliances, bathroom finishes along with typically ALL windows and doors and limited common areas like any balcony, patios, or decks, etc.

Flood Insurance is required by lenders in federally designated flood areas. While not required in cash sales this coverage is still strongly encouraged. This insurance compensates you for physical property damage resulting from flooding.

What Is Title Insurance?

Most lenders require a title insurance policy to protect the lender against an error in the results of the title search. If a problem arises, the insurance covers the lender's investment in the mortgage. Unlike health, car, or home insurance that insure against what may happen in the future, title insurance is insuring the buyer and a buyer's lender against what has already happened in the past.

There are typically two title insurance policies. Both are one-time premiums are usually based on the purchase price. One is typically provided at an expense to the seller showing that the seller can sell the home without any issues like the seller did not previously loose the property to litigation, a real estate tax sale, foreclosure a divorce etc. The second policy, which is the less expensive cost, is for the benefit of the lender who is extending a new mortgage to a buyer. Because the buyer chooses to have a mortgage, versus paying cash for the property, this 2nd policy is typically paid for by the buyer.

The Seller's policy, as the more expensive of the polices, will typically run $300-$1500 and is mostly based on the sales price of the property.

A closing protection letter (sometimes “insured closing letter” or “CPL”) forms a contract between a title insurance underwriter and a lender, in which the underwriter agrees to protect the lender for actual losses caused by certain kinds of misconduct by the closing agent. Examples would be a failure to follow written closing instructions or fraud or dishonesty in handling the lender’s funds or documents. The typical cost for the CPL is $25-$50. There are usually two "letters" (one for the lender & one for the buyer) and again because the buyer chooses to have a mortgage, versus paying cash for the property, this fee is typically paid for by the buyer.

What is an Appraisal & The Appraisal Fee?

An appraisal fee, of typically $300-$500, pays for an independent determination, by a licensed appraiser, of the value of the property and land you want to purchase or refinance.

While lenders want to be sure that the purchased property is worth at least as much as the loan amount you as the buyer wants to make sure you are not overpaying for a property which is why you should have this done even with cash purchases. Appraisals are not an exact science! They are just one person's opinion of the value of the property at one specific moment in time. When there will be a mortgage loan, the Appraiser is selected by the Buyer's lender. The more atypical a property is, or the more unaware an Appraiser is of exact local marketplace for this property being purchased, means it is exceptionally critical to work with lenders who have access to a small number of experienced appraisers who deal with small segments of the market vs just taking the next appraiser that is available even though they may not have much experience in the specific location or market, or the type of property being purchased.

All of Mitch's purchase agreements give you, as the buyer, the ability to get your earnest money back, and walk away from a sale, if the property does not appraise for at least as much as you have agreed to pay for the property. Typically, but not always, if everyone agrees the Appraiser was qualified, and there are not issues with either the comparable sales that were used or the adjustments that were made to set the value, then most sellers will offer to lower the purchase price to match the appraisal to try to keep a deal together. However, should a property not appraise, both parties can unilaterally walk away from a sale with the buyer getting their earnest money 100% returned. In the same way a Buyer cannot be forced to pay more than the appraisal, the seller cannot be forced to sell the property for less than the agreed upon sales price.

Some lenders and brokers include the appraisal fee as part of the application fee; you can ask the lender for a copy of the appraisal.

What Fees And/or Commission Will You Pay Your Buyer's Agent

While each agent can determine the fees, they will charge to represent both sellers and buyers, historically the sales price of a property has included commission for both the seller's agent and the buyer's agent. Also, historically the total commission being paid by the seller has been shared equally between the Listing Agent and the Buyer's Agent. Because of this often the commission paid by the seller has been accepted as suitable compensation by the buyer's agent, even if the Buyer's Agent would typically have charged more for their services as an Agent for the Buyer.

The exceptions would be if you have an Exclusive Buyer’s Agent Agreement in Place that covers any property you might purchase or a Property Specific Buyer's Agent agreement where the BAC offered by the Seller is less than your buyer's agent is willing to accept as payment. In either case if the Buyer's Agent Agreement stipulates a minimum percentage of the purchase price that is higher than the seller is paying as buyer’s agent commission (BAC) then you as the Buyer would be obligated to cover and difference as part of your closing costs between the agreement and what the seller is paying. With Mitch, he is willing to accept whatever amount the Sellers are paying as commission provided that the commission is being split equally between both the Listing Agent and the Buyer's Agent.

While Exclusive Buyer Agency Agreements are NOT commonplace. Your Agent would tell you, at the time of any offer, if the BAC is lower than then any Buyers Agent Agreement stipulates. This way you know what amount if any you will be responsible for as part of your closing costs BEFORE you write an offer on the property.

Mitch generally only has Exclusive Buyer Agent Agreements that are specific to a particular property, that you may want to write an offer on when that property is bank-owned, a short sale or when the BAC being offered by the seller and the listing agent . Mitch will share with you the reasons why he uses these agreements on these properties including how it helps protects you as a buyer from typical negotiating strategies lenders use with short sales and foreclosures.

Many Brokerages charge a Transaction or Commission related to Document Management for the purchase. This fee ranges from $75.00 to $200. With Mitch, there is no transaction fee.

What Are Government Recording Fees

Recording is the act of putting a document into official county records, especially for real estate and property transactions, that provides a traceable chain of title. Specifically this would typically include the fees to record the mortgage and/or deed with the country where the property is located. These charges will typically only run $80 -$100.

What Are Surveyor & Surveying Fees

A survey confirms the location of buildings and improvements like fences, decks, walks, storage sheds, swimming pools etc., on the lot or land you are purchasing. Surveys can include more precise staked corners of the land/lot or simply may include a survey location report which is less accurate and only provides a visual representation of the lot with the improvements within a 2'-3' margin of error

While most Lenders do not typically require a property survey, there are many times that it is still strongly recommended to have a survey done even unless the property is a Condominium. Some lenders will require a complete (and more costly) staked survey to ensure that the house and other structures are legally where the seller says they are to make sure none of the new owner's improvements fall on a neighbor’s land. Typically, the most that would be required by a lender would be the less costly Surveyor Location Report that can run $175-$300. This document is usually sufficient to confirm that all structures, fences, etc. are indeed within the property lines.

A staked Survey typically runs from $250 to $800. The larger the property, and/or if you want the lot corners to have stake markers placed will push these fees towards the higher end of the range and possibly even higher. If you know you plan to add a fence, or build more structures, then it probably makes sense to have a staked survey completed to avoid paying twice for these costs when the time comes to do the actual work.

If you are buying a condominium in a high rise it probably does not make sense to spend money on a survey unless the lender requires it which is very unlikely.

What Are Homeowner Association Transfer & Move-In Fees... "HOA Fees"

Many Homeowner Associations (HOA) have fees associated with setting up buyers in their systems and/or removing the sellers. This Transfer fee typically ranges from $100 to $300 and in resale transactions, vs brand new construction, this fee is typically paid for upfront by the seller and then the seller is reimbursed at closing so that ultimately both sides equally share in this expense.

Some HOAs also have $200-$300 "Move-In" fees. These fees are especially common with Highrise condominium developments where the fee is intended to help cover wear and tear on common areas. A version of these fees also happens frequently with new home construction where the 1st, 2nd and/or 3rd owners must pay an amount equal to $300-$500 to help fund the HOA reserves as a new development.

What Are The Closing Or Settlement Fees

In many states’ closings are handled by lawyers who charge several thousand dollars for this service. In other states like Indiana, closings are typically conducted by title insurance companies who charge generally $300-$400 for this service.

Typically all parties involved in the sale–the buyer; the seller; any lender; the real estate agents; and representatives from the title firm- meet to sign forms and transfer funds. While this Closing Fee is negotiated as part of every purchase agreement the usual and customary result is the fee is typically shared equally between buyer and seller.

What Is The Application Fee

An Application fee is imposed by your lender or broker and can range from $65-$650 and typically covers the initial costs of processing your loan request and checking your credit report. While this is a very typical cost the substantial range in these typically nonrefundable fees means you should be clear on how much this fee is and what it includes when comparing various lending options.

What Are Assumption Fees

If a buyer assumes a mortgage, then the buyer "takes-over" the existing mortgage including the existing and often lower than current interest rates. Buyers can see significant savings at closing since there is no need for a new appraisal because the mortgage is already in place and the current mortgage is just transferred from the seller to the new buyer. The only mortgage types that typically allow for a new buyer to assume an existing mortgage are FHA, VA and USDA and these entities also impose limits on assumption-related fees to keep these mortgages more affordable for the new buyer.

An assumption Fee is the amount paid to a lender (usually by the buyer) for the lender’s agreement to start collecting payment from the new buyer instead of the original borrower (seller). This is an uncommon expense, and these are not typical in most sales.

What are Escrow or Reserve Funds

If your mortgage loan is for 80% or more of the purchase price, then most lenders will require that you set aside money in an escrow (or reserve) account that is basically a forced interest free savings account that is used to pay for property taxes, homeowner’s insurance, and flood insurance (if applicable).

Lenders use escrow funds to ensure that these items/expenses are paid on time and to protect their interest in your home. With an escrow account, money is held by the lender or its agent, which then pays the taxes and insurance bills when they are due.

Funding of these escrow accounts happen as part of your monthly payment that includes 1/12 of your annual insurance and real estate taxes. Plus, at closing/settlement, you may need to provide initial funding for this account. How much you will need to deposit into the escrow account at closing will depend on when the first payout will occur, and the government also limits the amount that can be in this account at any time.

For example, if you buy your home in January and property taxes are due in May, then there will only be 2-3 monthly mortgage/escrow payments before the lender will pay 1/2 (6/12ths) of your annual real estate tax payments. In this example you would likely need to deposit at closing 2-3 months of Homeowners Insurance and 3-4 Months of Property Taxes. If closing is within a month or two of the next real estate tax payment, then it is possible although unlikely that the tax escrow could be as much as 6-7 months of real estate taxes.

NOTE: ALSO SEE SELLER REAL ESTATE TAX CREDITS

What Are FHA, VA or RHS Fees

The Federal Housing Administration (FHA) offers insured mortgages, and the Veterans Administration (VA) and the Rural Housing Service (RHS) offer mortgage guarantees. If you are getting a mortgage insured by the FHA or guaranteed by the VA or the RHS, you will have to pay FHA mortgage insurance premiums (MIP) or VA or RHS guarantee fees.

An important difference between MIP and PMI is the length of time buyers are required to pay the premium. If you buy a house with an FHA loan, you will be required to pay MIP for at least 11 years. If you make a down payment of less than 10%, you will need to pay MIP throughout the life of the loan. The cost of MIP depends on the term of the buyer's mortgage, the amount of the buyer's base loan amount, and the loan to value ratio (LTV). While the cost of the annual premium can vary from borrower to borrower, the annual cost of MIP generally runs between 0.45% and 1.05% of the loan amount.

Another important difference between FHA and conventional loans is every buyer with an FHA loan pay monthly insurance premiums and must pay an upfront premium/fee which is currently 1.75% of the home’s purchase price. That means on a house that costs $250,000 FHA buyers, unlike buyers with conventional mortgages, will pay a mortgage insurance premium/fee of $4,375.

VA guarantee fees range from 1.25% to 3.3% of the loan amount, depending on the size of your down payment (the higher your down payment, the lower the fee percentage). RHS fees are 2.00% of the loan amount.

What Is The Origination Fee

The origination fee (also called an underwriting fee, administrative fee, or processing fee) is charged by the lender for evaluating and preparing your mortgage loan. This fee may also cover the lender’s attorney’s fees, document preparation costs, notary fees, and similar charges.

Average loan origination fees range from 1% to 6%, and some could go as high as 8%. They amount of this fee takes into consideration your credit scores and the duration of the loan. A typical mortgage loan origination fee ranges from . 5% - 1% of the loan. Buyers will ultimately pay this fee either with additional cash at closing or through a higher interest rate or larger mortgage loan amount that also includes this fee.

PMI/MIP... Private Mortgage Insurance & Mortgage Insurance Premium 

Private mortgage insurance (PMI), is typically required by a lender if your insured conventional loan-to-value ratio, the amount of the loan divided by the value of the home, is greater than 80%. Said another way this is typically required when your down payment is less than 20% of the purchase price. Note that this is calculated using the purchase price not the appraised value. So, even if the home should happen to appraise for more than you are paying, and the difference would seem to say you will have 20% or more equity in the property, you will still have to pay for PMI.

Mortgage Insurance Premium (MIP) is just like PMI but is required with FHA loans. With MIP and PMI this insurance protects the lender, not you as the homeowner, in case you default on the loan. Both PMI and MIP typically include an initial lump sum amount paid at closing along with monthly payment premiums that become a portion of your total mortgage payment. Most lenders have programs that allow you to increase the size of your loan to include your upfront MIP or PMI fees to minimize your closing costs.

Certain lenders with coventional loans also have PMI that can be paid ONLY in one lump sum at closing. The amount of payment will vary based on the size of the loan and your credit history, but the typical breakeven point is 2-3 years. This means that the amount you pay at closing as a 1-time amount is roughly equal to the combination of the smaller upfront payment at closing plus only 24-36 of your monthly PMI payments. The advantage to this is approach is that while your closing costs are greater you end up paying PMI for only 24-36 months vs the entire life of your mortgage.

With PMI you can typically remove this additional expense once the loan balance is equal to or greater than 80% of the value of the property. Conversely, with MIP the only way to discontinue MIP before the end of the mortgage term, is to refinance or sell your home.

What Are Points

Points are a one-time charge that may be negotiated with the lender, usually to reduce the interest rate you pay over the life of the buyer's loan.

One-point equals 1% of the loan amount. For example, one point on a $200,000 loan would be $2,000.

In some cases–especially in refinancing– the points can be financed by adding them to the amount that you borrow. However, if you pay the points at closing, they are deductible on your income taxes in the year they are paid (Note: Different deduction rules may apply when you refinance or purchase a second home).

What Is A Power Of Attorney Fee (POA)

A Power of Attorney (POA) is a legal document authorizing one person to act on another’s behalf. A Power Of Attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.

In the case of a Real Estate purchase or sale related POA this document typically gives another individual the ability to sign on behalf of a buyer or seller at closing for the purchase or sale of a property. The Title company completing the closing usually must prepare the POA and this can cost $75 – $150.

It can take a several days to prepare the POA and once it is prepared the person giving the ability for another to sign on their behalf will have to sign the POA in the presence of a notary public and return the POA to the title firm before closing. For these reasons you should let your agent know a party to the transaction will not be at closing and will require a POA. The title company will need to know which party will not be at closing and their current zip code along with the name of who will be signing in place of the absent party.

What is Prepaid Interest

Your first regular mortgage payment is usually due about six to eight weeks after you close (for example, if you close in August, your first regular payment will be due on October 1; the first payment in October includes the interest for the month of September). However, as soon as you close you will start to have interest costs. So, prepaid Interest is the amount you owe from the date you close till the 1st full month after you close.

For example, if you close on August 16, you will owe interest for 16 days starting on August 16 through and including the 31st. This Amount of Interest is considered prepaid since it gets paid at closing and in this example pre-pays interest from August 16th through the 31st.

What Is A Rate Lock

A Rate Lock is a commitment by the lender to a borrower guaranteeing a specified interest rate for a specified period to allow for a delayed closing which can often happen with brand new construction and the home will not be ready to close within 30-45 days.

Rate Locks are typically for 30-45 days. Many lenders will charge a fee to extend a Rate Lock beyond the initial or typical timeframe.

What Are Points

Points are a one-time charge that may be negotiated with the lender, usually to reduce the interest rate you pay over the life of the buyer's loan.

One-point equals 1% of the loan amount. For example, one point on a $200,000 loan would be $2,000.

In some cases–especially in refinancing– the points can be financed by adding them to the amount that you borrow. However, if you pay the points at closing, they are deductible on your income taxes in the year they are paid (Note: Different deduction rules may apply when you refinance or purchase a second home).

What Is A Buydown

A buydown gives a borrower a temporarily reduced monthly payment during the first few years of a home loan and is typically paid for in an initial lump sum made by the seller (on behalf of the buyer), the lender, or by the borrower themself to lower the interest rate for a short period of time.

A permanent buydown, known as Points, is paid the same way but reduces the interest rate over the entire life of a home loan. Buydowns do not happen very often unless you are working with some new home construction and semi-custom or production builders in a buyer's market.

What Is A Seller's Tax Credit

In Indiana Real Estate taxes are billed 2 x per year. 1/2 of the year is billed in the spring and the 2nd payment is billed and due in the fall. However, the taxes are billed one year behind. So, taxes paid during the current year are covering the prior year.

Typically most Sellers will pay taxes on the property for when they owned it. So, this means that sellers will almost always owe taxes that oftentimes might not even be due to the taxing authority yet at closing of the sale. In some instances, the lender may require these taxes be paid at closing to the state. At other times, since there will be enough time to escrow or build up the amount that will be due before it is due, and the lender will allow these taxes to be given to the buyer in the form of a Credit against what the buyer would otherwise bring to closing.

Note: While the buyer may be given this credit at closing the buyer must qualify for the loan without using this credit. Generally, the amount of this credit, on homes being resold, will be either be just over or just under a full year’s worth of real estate taxes.

On new construction, because there was not a home to tax in the prior year, there typically is no substantial real estate credit.

What is Seller's Assistance

Lenders will typically allow the seller to pay up to 3% of the Sales price as Buyer’s Closing costs and pre-paids.

Doing this means that the purchase price is increased by the amount of the Seller Assistance which means these amounts are then included in an increased mortgage amount.

While including Seller assistance may help you be able to afford the home you want, because we are adding up to 3% to the net purchase price, we must be able to buy the home at the ‘right price’ so that the extra 3% does not push the cost of the home with seller assistance beyond the ultimate appraised value. If the property does not appraise the more likely than not the deal will die.