What are they and how much should you save to cover them?
WHAT ARE CLOSING COSTS?
Home buyer closing costs in Washington State range from about 1% to 5% of the purchase price. There are various costs associated with closing a real estate transaction and you should receive a detailed “Loan Estimate” document from your lender when you apply for a mortgage loan.
Some examples of closing costs are:
*inspection fees
*title insurance fees
*recording fees
*escrow fees and
*loan fees
Some of the fees are paid by the buyer, some are paid by the seller and some are split between both buyer and seller.
See the example worksheet below to get a better understanding of how the buyer’s closing costs are calculated.
Buyer’s Estimated Net Cost
| PURCHASE PRICE | $185,000.00 |
| Earnest money deposit (credit) | -$5,000.00 |
| Financing (credit) | -$166,500.00 |
| Remainder (price less offsets) | $13,500.00 |
| BUYER’S CLOSING COSTS | |
| Appraisal fee | +$275.00 |
| Credit report | +$40.00 |
| Origination fee | +$1,665.00 |
| Discount points | +$4995.00 |
| Prepaid interest | +$504.05 |
| Lender’s title insurance | +$600.00 |
| Inspection fees | +$400.00 |
| Attorney’s fees | +$350.00 |
| Recording fees | +$50.00 |
| Escrow fee | +$250.00 |
| Property taxes | +$960.68 |
| ESTIMATED NET COST | $23,964.73 |
Certain costs are the buyer’s responsibility in every, or almost every transaction. Let’s take a look at each of these costs a little more in depth.
Purchase Price: This is the major cost for the buyer in every transaction. This will be the starting point on your buyer’s net cost worksheet. The price is offset by the buyer’s earnest money deposit and the financing.
Earnest Money: In most transactions, the buyer provides an earnest money deposit. ( If you would like to know more about earnest money deposits please see my blog post “What is earnest money and how much should I spend on it”). The deposit is applied to the purchase price if the sale closes.
Financing: Most buyers pay a large part of the purchase price with borrowed money.
Loan Costs: Borrowing money isn’t free. In addition to the interest the buyer will have to pay over the life of the loan, they will also incur a number of closing costs in the course of obtaining the loan.
Appraisal: The appraisal is required by the buyer’s lender, so the appraisal fee is ordinarily paid by the buyer
Credit Report: The buyer’s lender charges the buyer for the credit investigation.
Origination Fee: This is the lender’s one-time charge to the borrower for setting up the loan.
Discount Points: These are paid to the lender at closing in order to get a loan at a lower interest rate than the lender would have charged otherwise.
Prepaid Interest: Even though the first loan payment isn’t due for an extra month, interest begins accruing on the loan on the closing date. Interest on a real estate loan is almost always paid in arrears which means that the interest that accrues during a given month is paid at the end of that month.
Lender’s Title Insurance: The lender requires the buyer to provide a policy to protect the lender’s lien priority.
Inspection Fees: It is highly recommended that you get an inspection done on any home that you purchase. The inspection is paid by the buyer at the time the inspection is completed.
Attorney’s Fees: A buyer who is represented by an attorney in the transaction is responsible for their own attorney’s fees.
Recording Fees: The fees for recording the various documents in the transaction are usually charged to the party who benefits from the recording.
Escrow Fee: The escrow fee, also called a settlement statement fee or closing fee, is the fee charged for the escrow agent’s services. This fee is typically split in half between the buyer and seller.
Property Taxes: The seller is responsible for the property taxes up to the day of closing; the buyer is responsible for them thereafter.
Your closing costs should not come as a surprise to you on closing day. When you first apply for your loan, your lender will provide you with a standardized Loan Estimate form which includes an itemized list of all closing costs to be paid by the buyer. You will also receive a second document called the Closing Disclosure shortly before you close which includes the actual, finalized amounts that must be paid.
If you have any additional questions then don’t hesitate to reach out to your favorite local lender who would be very happy to assist you. Or you can call me, your favorite local Realtor® to schedule your free no obligation buyer consultation where we can discuss closing costs and all of your other real estate questions.
Molly Butler, Realtor®
John L. Scott Walla Walla
Phone: (509)200-0342
Email: [email protected]
Web: mbutler.johnlscott.com
sources: 10th edition of Washington Real Estate Practices