This is a question we get often when working with home buyers looking to secure a home loan through Transparent Mortgage. When it comes to buying real estate, there are numerous costs you will need to factor in. It goes beyond what money you are willing and able to put as a down payment or how much your mortgage payment will be every month.
Other costs that need to be considered when buying a home are known as “closing costs.” These are upfront service fees and charges that will be paid when the home purchase is finalized. In most real estate transactions, both buyers and sellers will be responsible for paying certain closing costs upon completion of the sale. In some cases, they can be rolled into the buyer’s actual mortgage loan, or you may prefer to pay them all up front to not add any more principal to the final loan amount.
Here are the primary closing costs you can expect to pay when buying a home:
Lender fees will vary from lender to lender. Examples may include an application fee, loan origination fee, processing fee, and an underwriting fee. Another option to consider is “buying down” the interest rates in the form of discount points. That basically means you pay more upfront to reduce the overall mortgage interest rate of the loan.
Non-Recurring Buyer Closing Costs
These are closing costs that are paid only once at the close of the transaction—hence the term “non-recurring.” These one-time charges may include:
- Title Policies
- Escrow Fees
- Notary Public Fees
- Wire Transfer Fees
- Courier/Delivery Fees
- Attorney Fees
- Recording Fees
- State, County or City Transfer Taxes
- Home Protection Plans
- Natural Hazard Disclosures
- Home Inspection Fees
- Lender Fees Paid in Conjunction with the Loan
Recurring Buyer Closing Costs
Some closing costs will be recurring fees that will be paid as part of your monthly mortgage payment. They are typically collected in advance to prepay premiums and/or to establish escrow/impound accounts. Specified escrow accounts may be required as part of the loan terms or may be recommended to cover certain recurring fees. Examples include:
- Homeowner’s Insurance Premiums
- Specialty Hazard Insurance (Flood, Fire, Earthquake)
- Property Taxes
- Private Mortgage Insurance (PMI)
- Prepaid Interest
Prepaid Interest, Taxes & Insurance
The recurring buyer closing costs as listed above are often part of the mortgage loan terms, meaning a portion of your monthly mortgage payment goes into a specific escrow/impound account. Property taxes are a fixed percentage based on the tax assessor’s appraised value of the home. Insurance will depend on the coverage you require. You can choose to pay homeowner’s insurance separately from your mortgage. However, some people prefer to include it for simplicity. In addition, there may be specialized insurance required on the home such as flood, earthquake or fire insurance.
Private mortgage insurance (PMI) is only required when you do not put a down payment of at least 20% of the principal value. It will be part of your mortgage payment until you surpass 20% of the principal paid. Lastly, prepaid interest represents the funds for the initial interest payment on your loan. The amount will vary because it is prorated based on which day of the month you close.
Understanding Your Closing Costs
When you apply for a home loan with Transparent Mortgage, we will be very upfront about any and all closing costs you can expect to pay. We chose the name “Transparent” because we believe in the importance of transparency and communication throughout the loan process. Our goal is to help you make the right mortgage decisions and make sure you understand everything that is happening throughout the loan process.
To learn more about Transparent Mortgage or to discuss your home buying or refinancing needs, call us today at (619) 701-3906.