Merit Real Estate

Out of Pocket Costs When Buying a Home

out of pocket closing costs

In addition to your downpayment, there are significant out of pocket costs associated with purchasing a home. These various ‘closing costs’ typically costs homebuyers between 2 and 5 percent of the purchase price.  Here is a list of typical ‘closing costs’.

Typical Out of Pocket Costs When Buying a Home

These costs vary greatly based on the area of the purchase, and the type of loan that you are getting.

  • Application Fee: This is the cost of applying for your loan. This fee can be negotiated and is not required by all lenders.
  • Appraisal Fee: Your lender will require you to have the home appraised to ensure that they are not lending more than what the home is worth.
  • Attorney/Escrow Fee: Some states require an attorney to review the closing documents on behalf of the buyer or the lender.  States that require you to have an attorney: Alabama, Connecticut, Delaware, District of Columbia, Florida, Georgia, Kansas, Kentucky, Maine, Maryland, Massachusetts, Mississippi, New Hampshire, New Jersey, New York, North Dakota, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, and West Virginia
  • Closing Fee or Escrow Fee: This fee is paid to the title company, escrow company, or attorney for conducting the closing. The title company or escrow oversees the closing as an independent 3rd party in the transaction.
  • Courier Fee: Covers the cost of delivering loan documents to parties to the transaction
  • Credit Report: Your lender will order a Tri-merge credit report to obtain your credit history and score.
  • Escrow Payments: Your lender may require you to deposit two months of property tax and mortgage insurance payments at closing.
  • FHA Up-Front Mortgage Insurance Premium (UPMIP): If you have an FHA loan, you’ll be required to pay the UPMIP of 1.75% of the base loan amount. You are also able to roll this into the cost of the loan if you prefer.
  • Home Inspection: Getting a home inspection is highly recommended when buying a home. It is the best way to protect yourself from buying a home that has major defects.
  • Homeowner’s Insurance:  The first year of insurance is typically paid at closing.
  • Lender’s Policy Title Insurance: Title insurance assures your lender that your home is free and clear of encumbrances and liens. If there are any issues with your title, this insurance protects your lender.
  • Loan Discount Points: “Points” are prepaid interest. One point is one percent of your loan amount. This is a lump-sum payment that lowers your monthly payment for the life of your loan.
  • Owner’s Policy Title Insurance: This is an insurance policy that protects you in the event someone challenges your ownership of the home.
  • Origination Fee: This is typically 1 percent of the total loan.
  • Pest Inspection: This is often optional, but we don’t suggest that buyers skip this inspection.
  • Prepaid Interest: Most lenders will ask you to prepay any interest that will accrue between closing and the date of your first mortgage payment.
  • Private Mortgage Insurance (PMI): If you’re making a down payment that’s less than 20% of the home’s purchase price, chances are you’ll be required to pay PMI.
  • Property Tax: Typically, lenders will want any taxes due within 60 days of purchase by the loan servicer to be paid at closing.
  • Recording Fees: This fee is charged by your local recording office, usually city or county, for the recording of public land records.
  • Transfer Taxes: This is the tax paid when the title passes from seller to buyer.
  • Underwriting Fee: This also goes to your lender, covering the cost of researching whether or not to approve you for the loan.

If you have questions about out of pocket costs when buying a home, please do not hesitate to call us for more info. We will be happy to have one of our preferred lenders consult with you about these costs.