Those Terrifying Closing Costs – Part 2 – How much and who pays?

These figures, for planning purposes only, are approximate figures for Tucson, AZ in 2010.  Always ask your real estate agent, title or escrow company, and lender for the exact amounts when you are working on an actual transaction.  Some of the charges are negotiable, both in amount and who pays, but normally a charge is paid by the party who benefits from the service. 

Your down payment will be determined by your finances.  The larger the down payment, the smaller your monthly mortgage payment, and you may get a lower interest rate as well.  VA loans (for veterans) do not require down payments, although there is a 2.15% “funding fee” added to the loan amount; FHA-insured loans require a minimum down payment of 3.5% of the contract price as of 1/1/09.

 Earnest money can be credited to your down payment, if it is spelled out this way in your offer.  The amount is not specified by law, but typically ranges between $500 and $3000.   

Escrow and title costs

  • Escrow fee depends on the selling price of the property. Figure on $475 for a $100,000 property and add $100 for every $100,000 increase in price.  Split evenly between buyer and seller.
  • New loan escrow fee $75 paid by the buyer.
  • Buyer’s title insurance policy (also called Owner’s Title Policy) depends on the selling price of the property.   Figure $700 for a $100,000 property and add $300 for every $100,000 increase in price.  Paid by the seller.
  • Lender’s title insurance policy (also called ALTA Loan Policy) depends on the selling price of the property.  Figure $415 for a $100,000 property and add $150 for every $100,000 increase in price.

Mortgage loan fees

  • Appraisal fee  About $400.   Paid by the buyer.
  • Application fee  About $120.  Paid by the buyer.
  • Origination fee Usually 1%, also called 1 “point,” of the loan amount, but may be negotiable. Paid by buyer.
  • Loan Discount Points (if applicable) In general, for a charge of 1% of the loan, your interest rate would be lowered .125%.  As an example, if you were borrowing $100,000 at 5%, the interest rate could be lowered to 4.875% for a payment of $1000, resulting in a lower monthly payment. Paid by buyer.   See http://en.wikipedia.org/wiki/Point_(mortgage)  for a discussion.
  • Prepaid mortgage interest If you are closing near the end of the month, this charge will be minimal.  If closing near the beginning, this charge will be almost equal to a whole monthly payment.  Paid by buyer.
  • Mortgage insurance premium (MIP or PMI)  FHA requires an up-front mortgage insurance premium of 1.5% of the loan amount ($1500 on a $100,000 loan) which can be financed by adding it to your loan.  There will also be a monthly payment of .5% and you may be required to pay for a reserve equal to about 14 months at closing.  If your down payment on a conventional loan (non FHA/VA) is less than 20% of the purchase price, your lender may require you to purchase mortgage insurance costing about .5% of the loan amount per year. Paid by buyer.
  • Assumption processing/transfer fees (if applicable)    Only the lender can tell you what he will charge for this, but several hundred dollars is normal.  (Obviously, you would only want to assume a loan if the interest rate were lower than what you could get on a new loan.)  Paid by buyer.
  •  Account servicing setup fee (if applicable)    Figure $150 for set-up, unless there will be reserves accumulating, in which case the cost is nearer $250, also a monthly fee for ongoing servicing of about $20.  Paid by buyer.
  • Payoff statement fee (& payoff penalty if applicable)    About $50 for statement.  If there is a penalty for paying off the mortgage before the end of the term, the amount will be determined by the contract with the lender.  Both paid by seller

Taxes and insurance

  • Flood certification (and insurance if applicable)   About $25 for certification.  If your Pima County, AZ property is located in a flood zone, the insurance premium could be $120-500 per year.  Paid by buyer.
  • Fire protection proration (if applicable)   Figure about $20-40 per year on a $100,000 property.  Paid by buyer.
  • County tax and impound for reserves    To quickly estimate the yearly property taxes, check the property’s MLS listing to see what the current owners are paying, then adjust upward for tax increases, and upward or downward for your purchase price relative to theirs (the property will be reassessed following purchase).  Count on having to establish at closing a reserve fund of several months worth.  Paid by buyer
  • Home hazard insurance  The cost of insurance will depend on the carrier, coverage, and deductible you choose, but the average Arizonan pays about $500 per year.  Count on having to establish at closing a reserve fund of several months worth.  Paid by buyer

 

Other possible local government fees

  • Septic certification or dye test  An independent septic system contractor may charge $500 for certification.  Paid by buyer or seller through negotiation.
  • Percolation  test  The perc test may be twice the cost of  septic certification, if it includes site plan design and excavation. Paid by buyer or seller through negotiation.
  • Survey  Cost depends on scope of work.  Check around for estimates.  Paid by buyer or seller through negotiation.

Brokerage fees  By Arizona law, all commissions  paid to real estate brokerages are negotiable, not fixed, fees; that said, this service to market and sell a home typically costs about 5-7% of the selling price.  Paid by seller.

“Misc” fees                                                                                                                      

  • Recording fees  A typical transaction in Pima county entails two recording fees of $38 each.  Split between buyer and seller, $38 each.
  • Express & courier fees  A typical transaction in Pima County entails six express fees of $40 each.  Split between buyer and seller, $120 each.
  • Reconveyance / Satisfaction fee Figure $75 per loan.  Paid by seller.
  • Tracking fee  Figure $75.  Paid by seller.
  • Wood infestation report   Figure $60.  Paid by buyer.
  • Home inspection  Figure $275-400.  Paid by buyer, negotiable.
  • Home warranty Depends on what is being covered, but usually $325-$400 per year.  Paid by buyer or seller through negotiation.  If paid by seller, buyer can cancel after one year.
  • HOA inspection and transfer fees  Inspection about $75; transfer about $250.  Paid by seller.
  • HOA prorated fee  HOA fees are listed on MLS detail sheet.  Split between buyer and seller; take monthly cost and figure your share based on day of closing.
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2 Responses to Those Terrifying Closing Costs – Part 2 – How much and who pays?

  1. Jason says:

    Since when does the seller pay for title insurance? This is wrong.

    • Jason, there are two title insurance policies issued in any sale: (1) the Buyer buys a policy to protect his lender if he has borrowed mortgage money; and (2) the Seller buys a policy to protect the buyer. Neither the Lender nor the Buyer should be unprotected from any faults in the title that may be discovered after the sale. If you were the Buyer, wouldn’t you be suspicious if the Seller were unwilling to guarantee the validity of the title?

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