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Costs of Closing on the Purchase of a Home

  1. Earnest Money
  2. Mortgage Application Fee
  3. Appraisal Fee
  4. Assumption Fee
  5. Attorney’s Fee (Hourly)
  6. Brokers Commission
  7. Discount Points
  8. FHA, VA and USDA Fees
  9. Home Inspection
  10. Homeowners Insurance
  11. Mortgage Insurance
  12. Origination Fee
  13. Pest Inspection
  14. Prepaid Interest
  15. Prepaid Taxes
  16. Survey Fees
  17. Title Search

When you finalize a purchase of a home, there are numerous costs that come with the purchase. Other than the actual payment for the home through your mortgage, closing costs will  include some or all the following:

Part 1: Earnest Money

A deposit made when the buyer submits a purchase offer. The earnest money deposit is made to prove to the seller that the buyer is serious about purchasing the home and to tell the seller to take the home off the market. Generally, the earnest money is due when the purchase offer is accepted. The money is kept in an escrow account and will go toward paying down the costs of buying the home. The earnest money will be distributed at the closing. If the buyer backs out, the earnest money will be forfeited and given to the seller.

Part 2: Mortgage Application Fee

A fee for processing or underwriting a mortgage charged by the bank or mortgage company (See Origination Fee).

Part 3: Appraisal Fee

A charge to the buyer for a written expert opinion of the worth of the home the buyer intends to purchase. Federal backed or Federal originated mortgages (FHA, VA and USDA) require the appraiser to be licensed or certified.

Part 4: Assumption Fee

This is if the buyer is taking over the owner’s existing mortgage rather than getting a new mortgage, which rrarely happens.

Part 5: Attorney’s Fee (Hourly)

May be needed, may not. A good real estate agent or home buying counselor may be sufficient.

Part 6: Brokers Commission

The amount of money a real estate agent or broker receives for helping the buyer find a home to purchase and guide the buyer through the process. Real estate agents have to be licensed and will charge a percentage of the price of the purchased home.

Part 7: Discount Points

This is an upfront payment to a bank or mortgage company that would lower the interest rate of the mortgage. (1 point costs 1% of the mortgage amount)

So, if the mortgage is for $150,000, to lower the interest rate (and the amount shaved off the interest rate can be small), the buyer would pay $1500 extra at closing. Sometimes it’s a good idea, sometimes not. If the amount of the money saved on the monthly mortgage payment adds up to the amount paid in points within 36 months of paying the mortgage, then it might be a good idea to come up with the money to pay down the interest rate. If not, then it probably won’t matter. Some federal loans allow the seller to pay points and sometimes the points fee can be rolled into the mortgage. Ask your real estate broker or homeowner counselor about the value of paying points.

Part 8: FHA, VA and USDA Fees

Special fees charged by the federal government to use these types of insured or direct mortgage loans.

Part 9: Home Inspection

If you have ever lived in Public Housing or used a Housing Choice Voucher (Section 8) to rent a home, you are familiar with inspections. Home inspections required by bank and mortgage companies before they agree to a mortgage are far more detailed and methodical. The Home Inspector will be formally trained and licensed. The inspector will look at the home from top to bottom. The inspection report the buyer receives should be comprehensive, thorough, and easy to interpret.

Part 10: Homeowners Insurance

Payments for Homeowner Insurance vary and are affected by the value of the home and total property the buyer wants to insure. Depending on location, the bank or mortgage company may require flood insurance. It is usually extra but always good to include back-up water damage insurance that covers sewer back up.

Part 11: Mortgage Insurance

A buyer has to pay mortgage insurance with any FHA insured mortgage.

Part 12: Origination Fee

The money the bank or mortgage company charges to complete the mortgage. Usually 0.5 percent of the mortgage amount.

Part 13: Pest Inspection

The bank or mortgage company will request a certificate from a qualified inspector stating that the home is free from termites and other pests and pest damage.

Part 14: Prepaid Interest

The total amount of daily interest charged from the closing date to the date of the first mortgage payment.

Part 15: Prepaid Taxes

The buyer will expect to pre-pay at least two months of property taxes.

If the seller has already paid the annual property tax, the buyer will need to reimburse the amount still left, to the seller. Be aware, there are 21 states which have Homestead Exemption opportunities for new buyers. After purchasing your home, you can file for a Homestead Exemption and be taxed at a lower rate. Check with your real estate broker or your Homeowner counselor for information about your state.

Part 16: Survey Fees

Fees charged for measuring land areas and verifying boundaries by completing measurements of dimensions, lot lines and the placement of the home. This is completed so the buyer will know exactly what is being purchased. Not usually necessary to purchase the home but could be worth it.