A Guide to Closing Costs

Closing Costs

Home mortgage closing costs in New Mexico are pricey, according to a newly released survey.

A Bankrate survey shows mortgage closing costs for a typical $200,000 home in the state are, on average, $1,952. The price places New Mexico as sixth-highest in the nation.

Bankrate surveyed 10 mortgage lenders in each state and asked for the price of origination fees and third-party fees when securing a mortgage, which include lender fees, appraisal fees and credit report costs.

New Mexico’s average origination fee was $1,076 and the state’s average third-party fees were $876. New Mexico’s fees were higher than big housing markets such as New York, California, Colorado, Texas and Washington, D.C. Access the full list here.

A Guide to Closing Costs

By Devon Thorsby, Editor, Real Estate

The costs involved in buying and selling property are often negotiable as part of the real estate transaction. A buyer may be willing to offer the full asking price, as long as the seller is willing to cover some the costs related to closing, such as deed transfer costs, HOA transfer fees.

Who pays for certain fees can also depend on location of the property, state, county and city laws.

Here is a list of the closing costs buyers and sellers can expect in a real estate transaction, followed by descriptions and who traditionally pays:

  • Recording fee
  • title search and title insurance
  • settlement fee
  • loan application fee
  • loan origination fee
  • Loan points
  • Home inspection & other inspections, such as roof or well inspections
  • Appraisal
  • Survey
  • Building or homeowners association fees
  • Existing liens
  • Real estate brokerage fees
  • Attorney’s fees
  • Mortgage payoff penalty fees

 

Recording Fees

Who typical pays? The Seller, buyer or both

The recording fee can be levied by the state or local government to cover the cost of filing the deed and mortgage information in the public record. In many states and local governments throughout the U.S., the transfer tax and recording fee are one and the same, while others keep the two separate. While the transfer tax is a percentage of the sale price, the recording fee is typically a flat amount. In the San Francisco bay area, for example, the fee varies based on the document but ranges from $75 to $225. In other parts of the country, the recording fee is $12 for the first page of a deed and $5.00 for each additional page.

Title Search and Title Insurance

Who typically pays? The buyer.

Before you take ownership of a property, it’s important to make sure there aren’t any existing liens or other claims of ownership. As John DeMarco, broker and owner of Re/Max 5 Star Realty in Hollywood, Florida, notes, “The sellers might not be aware that there is a lien on the property.”

Title insurance protects you from future claims to the property and often includes the cost of the title search. Homebuyers can purchase title insurance for their own protection at the same time they pay for title insurance for their lender, which is often a required step in getting a mortgage and similarly protects the lender from claims to the property.

The cost of title insurance varies based on the value of the property, but many homebuyers pay between $1,000 and $2,000.

While lenders and real estate agents often have title insurance companies they work with regularly, you can shop around for a title insurance company that you like better or one that charges lower fees.

Settlement Fee

Who typically pays? The buyer or seller.

A title insurance company, escrow agent or attorney may handle the transfer of funds in the sale of a property and charge an additional fee for the work done at closing. The settlement fee could be directed at the buyer, seller or both. However, this fee, which may be included in title charges or attorney’s fees and is often at least a few hundred dollars, can often be negotiated between the buyer or seller to sweeten the deal beyond the sale price.

 

Loan Application Fee

Who typically pays? The buyer.

Some lenders levy a fee upon formal application for a mortgage, primarily to ensure the buyer is serious. This is a flat fee, often as small as $25.

Loan Origination Fee

Who typically pays? The buyer.

Loan origination typically covers the underwriting process – when the lender determines whether you are worthy of a mortgage.

Your lender may charge separately for various costs that would otherwise fall under loan origination – namely, the credit check to determine your creditworthiness for a mortgage. Other lenders keep the credit check “fully lumped into one fee,” says Max Koziol, senior lending manager for JPMorgan Chase, which does so. Loan origination fees are around 1% of the total mortgage amount.

Points

Who typically pays? The buyer.

At closing, a homebuyer getting a mortgage may pay additional fees to the lender to reduce the interest rate for the loan. One point is the equivalent of 1% of the loan, so if you’d like to pay down 2 points of a $300,000 mortgage, for example, you would pay $6,000 for your interest rate to drop from 4.5% to 4%, though how much the interest rate drops depends on you and your lender.

Paying down the interest rate with points isn’t required, however. It’s solely based on cash the buyer has available and is willing to pay at the time of closing. Paying points can be a valuable tool for reducing the total cost of the loan, although it does increase what you pay at closing. If your focus is decreasing closing costs, lenders can often comply, but it’s at the expense of a higher interest rate, DeMarco says. While a higher interest rate may mean lower closing costs, the buyer is ultimately paying more for the house in the long run. “That’s a trap a lot of consumers fall victim to,” he says.

 

Home Inspection

Who typically pays? The buyer.

During the due diligence period before closing, a certified professional often conducts a home inspection to check the condition of the home and point out maintenance issues, necessary repairs or possible code violations. Some lenders require an inspection to check for defects that may not be apparent in an appraisal, but buyers often opt for an inspection to learn what repairs will be needed after they get the keys.

While the cost of inspection typically falls to the buyer, this expense is negotiable. A home seller may also choose to have a prelisting inspection, which the buyer can accept or opt for additional inspection during the due diligence process. HomeAdvisor reports the typical price range for a home inspection is between $278 and $390, but it varies depending on the inspector and size of the home.

 

[Read: Why You Should Sell Your Home in 2019.]

 

Appraisal

Who typically pays? The buyer.

Many lenders require an appraisal to determine the property’s value before approving a purchase loan and to ensure it matches or exceeds the agreed-upon sale price. An appraisal helps reduce the lender’s losses in a the scenario where the borrower defaults on the loan.

You can seek a different appraisal company than the one your lender recommends. Don’t be afraid to shop around and compare costs, but be sure the appraiser you choose is one the lender will accept before you pay for the assessment.

Survey

Who typically pays? The buyer.

If there’s any confusion about where the property starts and ends, a property survey may be necessary. To determine the definitive boundaries of a property, it’s typically best to contact a professional surveyor who can follow the precise measurements of the property’s legal description.

 

A survey may be required by the lender, which naturally falls to the buyer to pay. However, this expense may be negotiated to become the seller’s responsibility.

Building or Homeowners Association Fees

Who typically pays? The buyer.

If the home you purchase is part of a community managed by a homeowners association, you may be required to join an HOA and pay the associated fees at closing in addition to monthly or annual dues.

For example, in New York City, where many homeowners live in buildings that are part of a co-op or condo association, potential buyers are often required to apply to the community board in addition to making an offer on the individual unit.

In a more suburban setting where an HOA manages a community of single-family homes, the HOA may charge a fee for placing the home on the market and for the paperwork associated with transferring ownership of the home in its own files.

Because these fees differ by state, community and building, buyers should keep them in mind when making an offer. A seller may be willing to cover a hefty HOA fee in exchange for a slightly higher sale price.

Existing Liens

Who typically pays? The seller.

If a lien is discovered during the title search, the issue must be resolved before the deed can be transferred to new ownership.

In cases where the seller was unaware of the lien or now has the funds to right the issue, the seller is responsible for working with the lien holder to resolve the issue. In cases where the seller is unable to pay, however, the buyer can decide if he or she wants to try to resolve the lien or walk away from the deal.

Real Estate Brokerage Commissions

Who typically pays? The seller.

No doubt that real estate agents get paid once a deal closes. Traditionally, the seller pays the commission to the real estate brokerages that represented both the buyer and seller from the proceeds of the sale, which typically runs between 5% and 6%, split between the two brokerages. The real estate agents then receive their share of the commission.

Attorney’s Fees

Who typically pays? Buyer and seller, for respective attorneys.

In some parts of the U.S., such as New York City and Chicago, a real estate attorney takes over the due diligence phase once a contract is signed for a property. The title search, appraisal and any other assessments of the property are overseen by the attorney, rather than an escrow or title insurance representative.

Of course, buyers and sellers using an attorney for these steps should expect to pay their attorney’s fees in addition to the fees for services conducted by the attorney, like a title search.

 

[Read: Everything You Need to Know About a Pending Home Sale]

 

Mortgage Payoff Penalty

Who typically pays? The seller.

Before you sell your home, check your existing mortgage agreement to see if there are any penalties associated with paying off your mortgage before the end of its term. The penalty may vary based on a percentage of the loan – 3%, for example – or a certain number of months’ worth of interest payments. The Consumer Financial Protection Bureau notes that any prepayment penalty must be included as a clause in your original mortgage statement.

 

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