by Marty Orfice

Most homeowners do not realize the true cost involved in selling a home. To calculate the true cost to sell your home you need to include the Realtors commission, repairs, house closing costs, holding costs, and offer discount.

How much money will each item cost you?

Realtor’s Commission
When you list your house with an agent, you immediately have to mark up the price to cover the 6% or more commission they make, or else lose that money from your profit margin. On a $200,000 house, you will have to pay a realtor $12,000 just to sell your home!

Repairs
Another overlooked cost is the price you have to pay for all of the repairs and updates to get it ready for listing. Repairs are not only costly, they can take time to complete. These updates can include painting, new carpeting, new flooring, landscape work and minor remodeling. Repairs can cost hundreds or thousands of dollars, depending on the size and age of the house. Major repairs like plumbing, electrical or HVAC systems can easily cost thousands of dollars in fixing.

House Closing Costs
When you close on a house, you will have all of the fees associated with closing. You have to go through the realtor’s title company and pay fees, and then the mortgage company has fees and any other miscellaneous fees incurred while closing. The house closing costs are usually another 3 to 5% of your home sale price. This could be an additional $6,000 to $10,000 on a $200,000 house.

Hidden Costs
Besides obvious expenses to sell your house, there are hidden costs too. Holding costs is the money that you pay while the house is being sold. While your house is on the market, you continue to pay the mortgage, the taxes, insurance, and the maintenance. In today’s slow market, it may take 6 to 12 months before you find a buyer. And when you do get a purchase agreement, you often have to wait another 30, 60 or even 90 days before you can close and get your money!

Also, depending on your region, sale prices range between 88 and 97% of the asking price. With so many houses for sale in certain areas, it has become a buyers market. To sell your house at all, you may need to drastically reduce your price, costing you yet more money.

Do the following math to figure out how much money selling your home with a realtor is going to cost you:

• Start with the asking price of your house.

• On average, the sale price is 4% lower, so subtract 4%.

• Now, take the sale price and subtract 7% of the price for the realtor’s commission.

• Deduct another 3% for house closing costs.

• Finally, subtract 4% for the cost of repairs.

How much is left? Not as much as you thought? It’s time to check into some other options if you want to sell your home!

house closing costs

Mortgage: A mortgage is basically the pledging of property to a creditor as security for the payment of a debt (Webster). Essentially, when you take the loan, you agree to let the lender hold the title to your house until the debt is completely paid off. You are also empowering the lender to sell your house in case you can’t make your mortgage payments.

Paying for your house includes arranging for the down payment, the mortgage payment (which consists of the principal, the interest, taxes, and insurance – referred to as PITI), and house closing costs.

Down payment: This is the lump sum you pay upfront – you are required to pay some of the money for the house from your own savings. The greater the amount you can arrange for the down payment, the lesser the amount you have to borrow – this translates to lower monthly installments. Typically, you need to arrange at least 3 to 5 percent of the purchase price on your own.

Principal: The total amount of money that you are borrowing from the lender is referred to as the principal. Usually the principal is the cost of the house minus the share that you are paying (down payment).

Interest: Why would the lender bother to lend you money? To earn interest, of course. The interest is basically an amount over and above the borrowed amount, that you are paying to the lender in monthly installments in addition to the principal you are returning. The interest rate is usually decided at the time of finalizing the mortgage arrangements – it can be fixed or variable.

Taxes: You are required to pay property taxes – the amount for this is often set-aside in an escrow account. What this means is that the money is placed in the hands of a third party until it is time to pay or certain conditions are met. A part of your property tax is added to your monthly mortgage payment. The amount is then held in escrow until it is due.

Insurance: Insurance can be of different types – hazard insurance (to protect against losses from fire, storms, theft), flood insurance (if you live in a flood risk zone), and then there is the private mortgage insurance or PMI that you will have to pay (if you have less than 20 percent equity in your home).

House Closing Costs: Besides the above mentioned costs, you will have to arrange for house closing costs. When closing on a house, the costs include loan origination fee, discount points, appraisal fee, title search, title insurance, survey, taxes, deed-recording fee and credit report charges. These costs are also known as ‘settlement costs’.

house closing costs

When deciding between a Home Equity Loan against a Home Equity Line of Credit, first we need to determine what the money is being used for and how much money are we going to need. Generally, a HELOC (Home Equity Line of Credit) is a better choice for ongoing cash needs, such as college tuition payments or medical bills.

Home equity loan allows you to draw money whenever you need money, capped at a fixed limit. There is generally a minimum payment due each month, with the option to pay off as much of the line as you want. The two most popular types of home equity loans are called “open” and “closed.” The “open” loan or a line of credit sometimes called a HELOC.

In this loan usually the interest rate is variable tied to the prime rate and the term of the loan can range from five to thirty years. Because the rate is variable the payment amount is as well which might be problematic. Lenders often offer a special starting rate as an added enticement. The other type of loan is a “closed” loan where the amount is a fixed amount for a fixed period at a fixed rate with set payments so at the end of the term the loan is paid off much like a regular installment loan.

The rates and term of the loan are usually fixed but because the extra money is unsecured the rates are generally higher than a regular first or second mortgage rate but still lower than credit card rates. With a home equity loan, there are also house closing costs that you need to take into account. This refers to the money paid at closing to the lender. It may include one or more of the following fees: a loan origination fee, points, appraisal fee, title search and insurance, survey, taxes, credit report charge and other costs assessed at conclusion.

One of the variations which have broad appeal is the 125 home equity loan so selected because the borrowers can get up to 125 % of the current combined loan to value (CLTV). This type of loan is mainly appealing to first time home buyers who may need to spend extra money on furniture, home improvements, landscaping, etc.

The extra money can be used for debt consolidation, medical expenses, or college tuition as well .There is such a wide variety of loans you can get using the equity in your home as collateral that it can be confusing. But if you do a little research you can find one that is just right for you and your needs.

house closing costs

When closing on a mortgage, there are always plenty of house closing costs and fees that apply. Many people just assume that these costs go straight to the loan officer but it’s not like that at all. There are many different fees that are all put together and called house closing costs. There are several different fees that go to several different locations for their assistance in the processing and paperwork of the mortgage. There are many different fees and it can even depend on your state requirements.

-Points These are usually required to be paid up front when the mortgage is closed.

-Escrow deposits for taxes these are your state taxes. They vary from state to state.

-Private mortgage insurance A lot of lenders ask that you have insurance in case you default on your loan. This insurance is usually one-half of one percent of the cost of the mortgage.

-Appraisal fees These fees go towards the appraiser who appraised the property. The home needs be appraised so that the bank can know whether or not the home is good collateral.

-Property survey Loan officers want to have a survey done of the property so that the exact boundaries are known to both parties.

-Loan origination fees These fees apply to the loan officer but his work in organizing and processing the mortgage.

-Title insurance The amount is based on the amount of the loan. This is insurance to protect

the title just in case someone else claims to own the property.

-Inspections Loan officers want the home to be inspected and also a pest inspection. These are standard for all who purchase homes.

-Homeowners insurance This is paid for by the home owner to protect their purchase.

-Credit reports There are many different reports that are made, but these are some of the most important and essential.

These are just a few of the fees that may or not be applied in your house closing costs. Pay attention to all the fees to make sure that the ones included in your house closing costs are legit. The fees are split up in many ways and can range from $15 to $500 each. Its a good idea to review all fees with your lender. If you have any questions, dont hesitate in asking them.

Try not to be frustrated or worried about paying so many fees. Keep in mind that there are many different factors when it comes to purchasing real estate and many different people are doing their part to help you be able to purchase it. Buying real estate is a large investment and the loan officers trying to help you in all ways. The average house closing costs can be anywhere from $2500 to $5000 but it depends on a lot of things.

As always, make sure you have good communication with your lender. If you have doubts about anything, just talk to them about. If you feel like you will not be able to pay the house closing costs soon, then maybe you should wait a while before applying for a mortgage.

house closing costs

House closing costs can be considered everything outside of the purchase price that a buyer has to pay for a complete real estate transaction.  For a seller, house closing costs are in the form of the fees, except liens or encumbrances.  These can be deducted from the purchase price. When buying or selling a home you should be aware that there are house closing costs involved. These are fees and/or expenses that you pay at the time of closing. Although it would be nice to not have to pay these fees, this is not possible in most cases. Closing costs are the innumerable fees and taxes associated with purchasing and taking ownership of a home. They include searches, clearances, and reports to process the transaction. Depending on where you live and the complexity of your transaction, they can easily add up to thousands of dollars.

You can make the seller to pay your house closing costs, but this is part of the negotiations that you will have to deal with on your own. Generally , house closing costs to buy a home will be approximately 2 to 3 percent of the purchase price. This can and will change depending on the property you are buying as well as the situation that you are in. Additionally, a large portion of your house closing costs have a lot to do with the points and other fees that are charged by your lender. naturally, you will want to find a reputable lender that is not going to overcharge you in this area. There are several non-recurring fees that are involved in the house closing costs. These include items such as: escrow, title policies, taxes, endorsements, lawyer fees, home inspection, wire fees, and notary fees.

Common recurring fees that go into house closing costs include: property taxes, flood insurance, prepaid interest, private mortgage insurance, and fire insurance. You should keep in mind that both non-recurring and recurring fees will vary based on your situation. Not only will the type of fees vary, but the price that you have to pay will also change based on the property that you are buying. There is no reason to get upset with the house closing costs that you are going to have to pay. The fact of the matter is that this is a part of buying or selling a home. Even though it can become quite expensive, there is no way around these fees. Not only do house closing costs go towards making things easier on you, but they also go towards paying people such as lawyers, a notary, etc.

All in all, look at house closing costs as a necessary evil. Do you really like to pay these fees? Absolutely not. But if you deceide to buy or sell a home don’t have any choice rather than it has to paid. So don’t get upset with the house closing costs that you have to owe.Just put the money separately to incur these expenses. This will make the process much easier on you since you will have all the money you need at hand.

house closing costs

You’ve come up with a down payment, searched for a good lawyer, and have found a reputable mortgage broker. Well done! You’re off to a great start in the house purchase process.

Keep in mind that you’ll also be facing — in addition to the expected legal fees and moving costs — a few extra payouts when the final deal is done. Knowing about these “house closing costs” in

advance soothes their sting. The following list covers typical costs you’ll encounter when your purchase is completed or “closed”.

Reimbursements

You’ll need to refund the money that the seller has already paid out on your behalf: expenses that are now fairly and rightfully owed by you, the new homeowner. In your lawyer’s office, on closing day, you’ll definitely run into those famous last words: “subject to the usual adjustments”.

Typically these adjustments include portions of municipal property and school taxes for the months you’ll be resident, utility bills paid in advance, fuel oil that you will be using – that kind of thing. These expenses would have to be paid by you anyway, so they are fair.

Land Transfer Or Similar Taxes

Your province levies this tax whenever real estate changes hands. It’s sometimes also called (ironically) a “welcome tax”. They do literally get you coming and going! The amount of this tax is a percentage of the purchase price of your property, so the more expensive the property, the bigger the tax.

Ask about Transfer Taxes in your province or the province you are moving to for full details.

Home Insurance

This insurance, especially fire, must take effect from the moment you are the owner of the home. It’s all about protecting the investment for the lender — and in this case it works for you too.

Mortgage Life and Disability insurance. This is an especially good idea for young parents or anyone else with dependents.

If anything should happen to either one of you, your home ownership won’t be in jeopardy. The mortgage would be paid in full – immediately – on your behalf. You’ll appreciate and need this peace of mind in a time of crisis, and you’ll save your family the extra burden of wondering if they would need to sell their home (even while they’re coping with a loss).

Your Ontario mortgage broker can often help you find a policy that works for your situation.

Home Inspection Fee

This is the fee you owe the inspector you hired to check out the physical structure and mechanicals of your home before you decided to buy it.

Home Appraisal Fee

Your lender requires this appraisal before they hand over any mortgage money. Naturally, they want to be assured that the property is worth an investment of their monies, and naturally, the cost of this appraisal is passed on to you, the customer.

This fee normally ranges between one and two hundred dollars – dependent upon location and complexity of the property.

The Survey

A legal survey of your land – its borders, perimeters, house placement, etc. — is sometimes required by the lender, and will be performed by a professional surveyor. If you’re lucky, a recent survey is already available; if not, a typical survey can cost you up to one thousand dollars. In the last few years, lenders have accepted title insurance (highly recommended anyway) in lieu of a survey document.

Title Insurance

This covers a myriad number of oddball situations that could threaten your title to the property. Title insurance is much less costly than a new survey, for example, and would cover most survey concerns anyway. Most homebuyers now look at title insurance as a great way to protect their biggest investment!

Legal Fees and Disbursements. Speak to your lawyer about their fee schedule. Typically between $1,000 & $1500.

Closing Day!

Today is the day legal title to the property changes hands. You’ve been busy packing, cleaning, and organizing the moving procedure at either end. The last thing you need to do is traipse down to the lawyer’s office… but that’s exactly what you’ll have to do. Your lawyer will sit down with you, carefully go through a pile of papers for signing, point out house closing costs.

But a good mortgage broker can help you be well-prepared for all the things that happen before the new house keys are finally in your hand.

house closing costs

Some of the upfront costs you should plan on paying when purchasing a home include appraisals, inspections, earnest money, lenders fees, title company fees, and house closing lawyer fees. It is vital that you plan for these fees – speak to your real estate professional or your lender who will be able to outline and estimate all of these costs for you. The total cost of these various expenses and fees can run into the thousands and even the tens of thousands of dollars. It pays to be prepared.

You must also be careful of the 100% mortgages or no-money down loans. A no-money down loan does not mean that there aren’t any costs associated with the loan. In reality, these types of loans allow the buyer to borrow 100% of the purchase price of the home however the buyer is still responsible for the numerous other costs mentioned above.

You should also keep in mind that you will have to pay a portion if not all of that year’s property taxes. Typically, property taxes are called on and required to be paid in full as the home closes. A buyer, upon closing the home, will be called to pay his/her share of the annual bill as it is pro-rated. You may want to enquire about the property taxes of a specific house, or neighborhood, before signing the purchasing contract. Some neighborhoods are taxed more heavily than others.

There is however a way of “avoiding” having to pay some or all of house closing costs. As a borrower, you do have the right to ask a seller concession to cover your house closing costs and pre-paid items. This makes it so you do not have to come up with any money at all for house closing costs.

A seller concession is worked into the purchase agreement and the seller will end up paying for some or all of the house closing costs. The seller concession is either a flat fee or a percentage of the loan amount. This is a fairly common practice, particularly in depressed real estate markets.

As for pre-paid items, they generally consist of pre-paid interest and escrows. Many people run into difficulty reading and understanding the multiple costs that are involved with purchasing a home. Because of this, do not take any chances and talk to a loan consultant or mortgage broker. This will help clarify your financial obligations.

Purchasing a home is an exciting adventure. Don’t let your fear of the unknown spoil this joyous event. Being prepared and well informed will avoid you being shell-shocked when the time comes to paying the bills. The more informed you are, the better prepared you will be for the many upfront costs associated with buying a home.

house closing costs

Click on the image above to see book details.

Buying your first home? Not sure what the difference is between a variable rate and a fixed rate mortgage? Do you understand the true cost of borrowing? Keep reading for 7 invaluable mortgage tips that are critical for any first time home buyer.

1. The bigger the down payment, the better.

The lower your down payment, the more you’re going to pay on a monthly basis. With a 5 percent down payment, for example, you’ll be expected to pay for mortgage insurance and will most likely be subject to higher interest rates. Most lenders like to see a down payment of at least 10-20 percent.

If there is any way you can squeeze that 20 percent down payment during the purchase process, you can literally save yourself tens of thousands of dollars over the life of the loan.

2. Good credit will save you money.

Lenders base your interest rate and your subsequent cost of borrowing heavily on your credit rating. If your credit is poor, you may be advised to wait a few years while you build your credit back up. The amount you save with a lower interest rate after rebuilding your credit could be tens of thousands of dollars over the life of the loan.

3. Remember the house closing costs.

Every mortgage has hidden costs associated with it, from legal fees to home inspections to bank’s house closing costs. Before you commit to any mortgage, remember to ask about all the house closing costs. You don’t want a $5000 surprise on closing day.

4. Get pre-approved.

While pre-approval can sometimes be more difficult, you can also save yourself a lot of unnecessary headaches. Essentially, you apply to the bank for a potential mortgage up to a certain amount. From there, you have a clear idea of your budget as you search for houses, and you can consequently make an offer that won’t be dependent on potential financing.

Additionally, when a home seller knows that you are already pre-approved to borrow for the amount of their home, this lets him or her know that you are a more serious buyer and could gain you a few concessions during the negotiating.

5. Investigate FHA loans.

The Federal Housing Administration (FHA) offers free loan insurance to qualified buyers with a minimum 3 percent down payment. This insurance means you can get a better rate from lenders without having to pay for outside mortgage insurance. Typically, the FHA sets maximum limits that depend on your county and region, but are based on the median house price for that area.

6. Budget for home insurance and property taxes.

No lender will mortgage a home that has tax liens on it or isn’t properly insured. When laying out your home ownership budget, always remember to calculate the monthly cost for county property taxes and home insurance. Whether the lender collects amounts from you monthly to cover these fees or you pay them directly each year, these are inescapable expenses that must be accounted for in your budget.

7. Choose a reputable lender.

Don’t just accept the first mortgage offer you receive. Instead, look for a lender that’s stable, reputable and able to offer you quality customer service. A lending institution is one you will likely be dealing with for 30 years, so finding one with a stable history and good reputation should be a high priority.

house closing costs

First-time home buyers are sometimes surprised by the many house closing costs. A good Realtor will inform their client that they will pay about 2.5 percent of the price of the home for house closing costs. This amount may be as high as 3 percent or more in some circumstances.

Loan applicants must ask the lender for a Good Faith Estimate (GFE). Responsible lenders normally give you a GFE at the time of application. Regulations oblige lenders to disclose estimated house closing costs and the Annual Percentage Rate within three days of the application. Loan contingencies vary and sometimes small changes will occur after the initial application.

Closing Costs Determined on Your Chosen Financing Option

Lenders propose several options for fees. One option is a “No Cost” loan. These loans are offered at a higher interest rate than traditional loans; basically your house closing costs are included in your loan by the higher rate. Another option long-term buyers prefer is buying your interest rate down through points. Buying a point is one percent of the cost of the loan and typically equals a .125 lower interest rate. Decide your priority. First-time buyers are usually concerned about beginning costs.

Typical Closing Costs Checklist

Generally, a lender will charge an origination fee that can be one percent of your loan amounts as well as a processing fee. Processing fees begin at $350 and go up from there. If you are working with a mortgage broker, there may be bank closing fees too, including an underwriting fee and a doc preparation fee. These fees will generally total between $600 and $900. There are also title fees, title insurance fees, inspection fees and an appraisal fee. Title fees will vary depending on loan amount. Appraisal fees can cost approximately $350 or more. Since all of these fees can vary so much, the GFE is crucial.

Payments for Taxes, Prepaid Interest and Insurance are Deposited in Escrow

To procure financing for your new home, you are required to buy homeowner’s insurance. The first year’s premium will be paid at closing. The lender may require one or two months’ interest at closing as well, since you have about a month of grace before your first mortgage payment is due. The later in the month you close on your home, the less interest you pay at closing. Depending upon the time of year you purchase and what property taxes have already been paid for the year, they will also collect four to nine months of property tax at closing.

Again, in order to prepare for house closing costs, smart buyers refer to their Good Faith Estimate.

house closing costs

The question many of us are asking these days is whether to refinance our mortgage, or wait for better terms or a better rate. While no one can accurately forecast where rates are headed, there are some steps you can take that will help you decide whether to refinance your mortgage now:

First: How much lower are the rates than what you are paying on your existing mortgage? Keeping in mind, especially if you are writing off some mortgage interest on your taxes, that a slight drop in rates may not make it worthwhile to refinance.

Second: If the rate is significantly lower, you may want to check what your monthly savings will be. When doing this, make sure you calculate the new mortgage payment after your refinance without factoring in any years you are adding on to the end. For example, if you owe 27 more years on your current mortgage, calculate your new payment using the new rate and the amount you are refinancing only over 27 years. Otherwise you might think you are lowering your payment more than you actually are, when you are really just adding years onto the end.

Third: So now you know how much you’d save each month on a refinance, but how much are the house closing costs going to be for your refinance? You need to be sure that paying any house closing costs (including points) are worthwhile. Here’s some simple math: If you are paying $2500 in house closing costs, and the reduced rate saves you $500 each year, you’ll need to stay where you are for five years to reap the benefits. For many, house closing costs are worthwhile, but for others who know they will need to upgrade, or have a job situation that can mean having to move, house closing costs may eliminate any benefit of the refinanced mortgage.

Fourth: If you’ve arrived here, you have probably figured that you are saving enough over time to make your new rate and the house closing costs worth moving forward. One last consideration: Do you think you will refinance again? This one may be close to impossible to answer easily, because who knows where rates are going. But, if you think they might go down, make sure you know what your lender’s terms are as far as refinancing. Some lenders will not refinance a mortgage for 90 days after the close of the one you are doing now. Make sure you are getting enough savings to not worry about that.

Fifth, and finally: One last word of caution: Once you lock you may have to pay fees (e.g. for an appraisal) that might not be recoverable if the loan does not go through. One of the biggest issues you could run into is that your appraisal is not high enough to qualify you for the mortgage. You may want to carefully look at comparable sales in your neighborhood, or, even better, talk to someone who is aware of the real estate market in your area, to be sure that your home will be appraised at a high enough value to meet the criteria of your loan.

If you’ve made it this far, you may be inclined to go forward and refinance. Best of luck! Information in this article should not take the place of a conversation with a finance and possible tax professional who is aware of your unique situation.

house closing costs