5 Common Closing Costs for Buyers
When purchasing a new home, common closing costs for buyers include a variety of fees and other charges. It’s important to have a complete understanding of all associated costs of purchasing a home, so we’ve outlined the 5 most common closing costs below to give you a better understanding of what you should expect.
Common Closing Costs for Buying a HomeDuring the closing process, a homebuyer can expect to encounter the following fees and costs when obtaining a loan. The fees and costs are different for cash purchases. For a customized quote of the closing costs specific to your transaction, fill out our quick and simple online quote form.
1. Appraisal FeeThe appraisal fee is the money paid to an appraisal company to determine the home’s fair market value. Lenders require a property appraisal before approving your loan. They want to be sure the value of the loan doesn’t exceed the value of the property you intend to buy or exceed the loan-to-value they are willing to offer you. That’s why they require you pay a professional property appraiser to make this determination.
2. Credit ReportA lender requires a credit report to check your credit score and history. This report shows the lender that you have the capacity to pay back the loan. Your credit score also affects the interest rate you’ll eventually get for your loan. The fee you pay for the credit report will be paid to agencies like Equifax, TransUnion and Experian. A credit report can cost between $15 and $30, but some lenders won’t require a credit report fee because they obtain their credit reports at a discounted rate.
3. Closing or Settlement FeeThis fee is paid to the title company that conducts the closing.
- The title company coordinates the closing process with all parties, including the buyer, seller, agents, lender and any other parties involved in the transaction.
- The fee covers the cost of all the work the title company does to consummate the closing, including the cost of preparing and checking documents required to be completed during the closing process.
4. Title Search FeeThe title search fee is paid to the title company to conduct a thorough search of records pertaining to the home you’re buying. The title company will examine previous deeds, name and property indexes, court records and a range of documents. This is vital to be sure there are no problems connected with the title of ownership to the property.
5. Various Forms of Insurance
- Private Mortgage Insurance (PMI): Private Mortgage Insurance is usually required if you take out a loan that is more than an 80% loan-to-value (ie the equity is less than 20%). You’ll also have to pay an upfront mortgage insurance premium if you take out an FHA mortgage loan.
- Flood Insurance: If the home is situated in a flood zone, a lender will require you to pay for flood insurance.
- Homeowner’s Insurance (HOI): Homeowner’s insurance covers any damages that occur to your home, which can include its contents, and a lender will require you to pay your first year’s homeowner’s insurance at closing.
- Title insurance: You must pay lender’s title insurance at closing to protect the lender from any liens that can arise because of previous title matters. It’s also wise to pay for owner’s title insurance to protect yourself as well.