The Costs of Closing

by : Lee Cameron

Whether you are buying or selling, closing a sale can be costly. There is a lot to think about above and beyond what the mortgage payments will be.

Firstly, there's the down payment. The more you can afford, the less your loan will be, but while the standard minimum required used to be about 10%, many new programs are available that allow the buyer to have only 0-5% down. Keep in mind that with no money down you will need to have an amazing credit rating and Private Mortgage Insurance (PMI) will be required. For the lending institution to determine your credit, you must pay a fee of around $50. A tax company may be contacted to verify that you have payed your taxes, and this is another roughly $75.

Sometimes there is a lenders fee, roughly 1-3% of the total loan, so talk to your loan agent about this. If you need the home you are buying appraised so that your loaning institution can determine the loan amount, this appraisal fee can be at least a few hundred dollars and sometimes as much as $1000. If you are assuming the sellers mortgage, there may be an assumption fee of a couple hundred dollars or up to 1% of the total loan amount.

Whether buying or selling, you may want the home to be inspected for various things. The advantage for sellers is that this is reassuring to buyers and can speed the selling process. The advantage for buyers is that they will then know exactly what they are getting, and their lending institution may require it before granting the loan, or as part of the market evaluation. Some examples of what may need inspecting are property inspections, including a check of the foundation, construction, plumbing and electrical system. These generally cost a few hundred dollars. A roof inspection is often done separately for about $100 or less. If the area the home is located may be on a fault line or a landslide area, geological inspections are recommended. You may also want to have the home inspected for pests such as termites or carpenter ants, things that threaten the structural integrity of the home. This can generally run around $100 or more if the home is very large. If the home is on a septic system, it is a good idea to get this checked as well. Septic inspections are surprisingly expensive, running at an average of a few hundred dollars. But imagine the alternative of discovering a problem after you've moved in.

If the home is older, testing for asbestos, radon or lead may be important. You want to ensure your home is as safe as possible for your family.

Then there are various insurance costs. In addition to mortgage insurance, you might consider extended title insurance. This covers any liens that may have been unrecorded, and may be required by lenders. It is based on a percentage of your loan amount.

Don't forget the various taxes. Your municipality may have a tax based on the final price of the home. If you are a veteran you should be exempt from this tax.

While all of the prices listed above are relative, it is important to keep in mind that there will be extra fees associated with the closing process. If you are buying, you may be able to negotiate with your real estate agent to have the seller pay closing costs. However there may be a limit that they are willing to pay, so make sure this is negotiated completely beforehand, and realize any inspections you decide to conduct after your negotiations will be at your expense. This is one reason for a thorough examination of the home before you make an offer.