For a first-time homebuyer, the many costs associated with purchasing a home can be unexpected and overwhelming. New buyers are often surprised at how much cash they need to bring to the closing table, in addition to down payment. Don’t worry, we’re going to help break down what closings costs you can expect when buying your first home.
What are Closing Costs? Closing Costs are upfront fees and expenses that are due from a Buyer at closing, in addition to the home’s purchase price. These can include lender origination fees, escrow fee, title insurance, recording fees, appraisal, survey, prepaids, home insurance, taxes and more.
Let’s take a look at the numbers from 3 recent closings to get a better idea of average costs. Download our Closing Costs chart here. We will go over major costs in 5 different categories of fees: Lender Fees, Title Fees, Prepaids, Escrow, and Other.
- Origination Fee – An upfront fee charged by the lender for the processing of your loan. Many times we see an origination fee of 1% of the loan amount or less. In our 3 example Closing Costs, origination fees ranged from $0.00 to $3,408.43 so be sure to ask your lender what they charge.
- Other Fees – Miscellaneous fees charged by the lender for your loan and ranged widely from $595.00 to $1940.00.
- Appraisal – Buyers are responsible for paying for an Appraisal of the property for all loans. An appraisal ensures the home is worth the loan amount. It is done by a licensed appraiser and these 3 appraisals averaged $535.00.
- Mortgage Insurance Premium – FHA loans require an upfront Mortgage Insurance Premium (MIP), a mortgage insurance policy, for loans with down payments of less than 20% that is about 1.75% of the loan amount. This is much like Private Mortgage Insurance (PMI) for conventional loans with less than 20% down.
- Title Insurance Policy – This insures the title of the home from potential title defects and is generally paid for by the seller. There is a $100.00 Lender Policy Fee that is charged to the buyer to have the lender added to the policy.
- Escrow/Closing Fee – Fee charged by the title company for handling closing of the real estate sale. This fee is paid by both buyers and sellers around $450 each depending on title company used.
- Homeowner’s Insurance – Lenders will require buyers to pre-pay for their whole 1st year of homeowner’s insurance at or before closing. This is often a surprise cost to first-time buyers and can be a significant amount of money. Insurance premiums will be largely dependent on the home and its location, but you can see that it can range from $995 – $1941 in our 3 examples.
- Interest – Lenders also require buyers to pre-pay their prorated loan interest payment for the month of closing. We often encourage end of the month closings so that buyers will only need to pre-pay a few days of interest vs. a whole month.
- An escrow account acts as a savings account for you, where a portion of your monthly mortgage payments go to cover your property tax and insurance payments every year. Lenders often require 3-4 months of homeowner’s insurance and property taxes to be put into escrow at closing.
- HOA Fees & Dues – If the home you’re purchasing has an HOA, there is often a “Transfer Fee” charged by the HOA that transfers ownership from the seller to you. This fee is determined by the HOA and in our example was $100. Also, if the seller has already paid HOA dues for the year, you may owe the seller a prorated portion of HOA fees.
- TSAHC & Down Payment Assistance – Texas has several programs that offer loan assistance for low to moderate income families and first-time homebuyers. If you qualify, you can receive down payment assistance up to 5% of your loan amount. Find out more at the TSAHC site here.
Another resource for closing costs is in our blog, “What Will My Closing Costs Be” where we provide a useful link to Bankrate.com which has average Closing Costs for Texas. You can also use a Closing Cost Calculator from a title company to estimate costs. Our favorite calculator app is from Independence Title and can be downloaded here: https://independencetitle.com/dfw/tools/
Your lender is the best resource for closing costs and can walk you through what you can expect to bring to the closing table. Ask us for a great lender recommendation! If you have any questions about the buying process, don’t hesitate to give us a call at (214) 449-1022. We’re here to help!