Typical Closing Costs for Home Mortgages
Most buyers are surprised to learn that closing costs actually vary greatly from lender to lender. And, of course, this variation is determined by your specific mortgage, as well as the type of home you have chosen to purchase. Closing costs are commonly included in a loan estimate provided to potential buyers. Although the purpose of a loan estimate is to provide buyers with an accurate breakdown of closing costs and what they will cost them, there are ways to eliminate or avoid paying for these costs.
The most common type of typical closing costs occurs when new buyer requests a title insurance premium. This fee is required by all lenders. Essentially, this fee covers legal expenses in the event that the property is sold for less than the balance owed on the mortgage. If an unexpected amount should arise, the loss would be covered by the lender’s loss obligation. Title insurance premiums can range anywhere from two percent of the total purchase price to one percent.
Another typical closing costs fee that often surprises sellers is the transfer tax. In Maryland, this fee is charged on all taxable sales. This applies to real estate purchases made within the city, state, county, or even the U.S., and is usually based on the current market value of the property being sold. Transfer taxes are not typically refundable; therefore, sellers must pay them.
Auctioneers commonly charge a fee for preparing estimates of the home purchase price and for preparing the final statement associated with the sale of the home. While these fees are typically included in the seller’s gross sales price, they are not refundable, and sellers are well advised to thoroughly research their typical closing costs. As noted above, real estate closers typically add several percentage points to the selling price of the house in this area of the country, and many of the sellers do not outgrow these fees. Thus, the buyer is not responsible for paying these fees.
One other typical closing costs fee is the title insurance premium. Many buyers mistakenly believe that this is a refundable fee, but it is actually a fee that is required by law. Title insurance premiums are charged because the title company protects the lender’s interest in the property. Title insurance is designed to protect the lender in the event that there are liens on the property. For example, if there are a few outstanding liens against a house, the lender would likely require that a borrower provide a lien certificate for a monthly payment.
Finally, there are closing costs associated with obtaining a mortgage loan. One fee that often surprises homeowners is the transfer taxes and insurance premium associated with obtaining a mortgage loan. Closing costs can run as high as three to six percent of the total amount of the mortgage loan.
There are two additional types of closing fees that borrowers should be aware of. Real estate professionals commonly charge a recording fee for their services. In addition, most lenders will also charge recording fees. Depending on the type of transaction and loan involved, recording fees may vary from one lender to the next.
A common fee that homeowners pay when taking out a mortgage loan is the application fee. The application fee is not included in the mortgage loan estimate that you receive after closing, so you must add this fee to your loan estimate in order to determine the cost of the transaction. Most lenders will require that applicants pay this application fee, which is a good way to ensure that you only spend money by requiring an application fee. Closing costs are very important, and they need to be factored into the overall cost of the transaction.