What closing costs should I expect?

Once you have completed negotiations with the seller and submitted an offer that is acceptable to the seller, proceed to the final step of closing a real estate transaction that involves paying all closing costs. Let’s start by understanding what closing costs are.

Closing costs refer to various fees and expenses that a home buyer is likely to incur when closing a real estate deal. Most people approach this session with a lot of anxiety simply because they have little or no idea of ​​the costs involved in closing. As a prudent real estate investor, it’s a good idea to ask for a piece of paper that estimates all of your closing costs. This document is commonly known as a “good faith estimate” and should be required from the mortgage lender or broker. However, it should be understood that these costs have little to do with broker fee expenses, but more to do with mortgage administration and documentation.

As you review your closing cost estimate, understand the various costs that will need to be paid annually and those that are one-time expenses. Most expenses related to insurance, property taxes, and mortgage payments will be recurring in nature. Careful segregation of the nature of expenses and a little planning for the financial closing session would go a long way to comfortably navigating the closing without any unpleasant surprises.

A number of closing cost items are at your expense only if you have availed of a mortgage loan. There are also some other overhead costs that you will have to bear regardless of whether you go to a lender or not.

Mortgage-related costs include.

o Loan Origination and Administration Fee: The fee payable to the credit institution to process your mortgage loan and generally amounts to approx. 1% of the loan amount.

o Loan application fee: a fixed amount charged by the lending institute for the loan application and varies between 100 and 500 USD.

o Private Mortgage Insurance Premium (PMI): In the event that the amount of the loan used by the buyer is greater than 80% of the value of the loan assessed by an appraiser, the buyer will have to bear additional expenses by paying a premium to PMI .

o Homeowner’s Insurance – It is mandatory to take out homeowner’s insurance if you have financed the purchase of your home through a mortgage loan.

Most financial planners and experts generally estimate closing costs on a mortgage case to be closer to 5% of the loan value.

General closing costs include expenses and fees payable to the real estate broker, attorneys, home inspector, title and registration fee, documentation fee, and appraisal fee.

You must go into the details of each and every component of the closing cost. This would help you be wise for future transactions. You can also seek the help of a professional tax advisor for details of tax concessions related to closing costs.