Closing Fees for Home Buyers
In the excitement of planning to buy a home, an often missed piece of the puzzle is planning for closing fees for home buyers. These closing fees or costs are in addition to the price of the home. Some of these closing fees can paid at settlement and be rolled into the mortgage (called a seller assist). Other fees need to be paid out of pocket prior to settlement.
Here are 5 closing fees for home buyers to keep in mind when planning a budget.
Closing Fees for Home Buyers Paid Prior to Closing
- Home Inspection. This is a crucial part of home buying. The inspection results can help home buyers negotiate price and repairs. Inspections also help buyers avoid purchasing a money pit! Generally, expect to pay between $500 to $700 depending on the home and inspection company chosen. Most home inspectors in Pike and Wayne County provide complete inspections: plumbing & electric, structure/safety, septic, wood destroying insects, and radon. Some (but not all!) home inspector fees include free “reinspects.” That means they will return to the house after repairs have been made to ensure things are working properly. Unlike other closing fees, home inspection fees will be due when the inspection is scheduled.
- Lender Fees. Some lender fees will be paid up front, others will be paid at settlement. Application fees and appraisal fees will be paid at the time the mortgage application is made. Many lenders will charge an application fee which varies from lender to lender. Some mortgage application fees can be around $500, more or less. Most lenders will require an appraisal of the home to determine its estimated value. The appraisal is conducted by a third-party appraiser. The cost is anywhere between $300 and $500. An appraisal is important because it helps protect the buyer from overpaying (and protects the lender from lending more than the home is worth). Other lender fees include processing fees and a fee for pulling your credit report.
Closing Fees for Home Buyers Paid At Settlement
- Title Services. A title search verifies that home buyers will have clear title to the home. This means the title is free of liens, claims, and encumbrances. Additionally, buyers should purchase title insurance to protect the property from many different problems that may come to the surface. These include tax liens as well as mistakes or omissions in the deed itself. Title insurance also protects against previous owners’ heirs attempting to make a claim on the property. Extended or enhanced title insurance protects against issues like permit or zoning violations, mistakes in surveys, and encroachments.Title company service fees vary but most are under $500. The Commonwealth of PA regulates title insurance fees. The fees vary depending on the purchase price. This is a one-time fee rather than an annual premium like other forms of insurance.Check out the title insurance calculator here.
- HOA Fees. Many homes are in a homeowners’ association that charge fees (or dues). HOA dues pay for general maintenance and updates like roads, pools, parks, and more. Typical HOA fees in the Lake Wallenpaupack and surrounding regions will vary from as little as $150 to as much as $2400 a year depending on the community. Also, most homeowner associations charge buyers a one-time capital improvement fee. This fee goes into a special fund for new capital improvements to the community. Finally, there may be additional fees for community water and sewer. While some communities charge a flat rate for water fees, often those fees will be calculated by usage.
- Taxes. Property and school taxes vary depending on the property, municipality, and school district. Buyers pay a prorated amount, starting from the settlement date to the end of the fiscal or calendar year . Additionally, there are transfer taxes. In Pike & Wayne County PA, the transfer tax is 2% of the purchase price. Buyers and sellers split the transfer tax evenly, and each pay 1% of the sale price of the home.
A Seller Assist Can Help!
Consider using a seller assist to help pay for closing fees that are due at settlement. Some refer to this as “the seller paying for the buyer’s closing costs.” When using a seller assist, buyers spend less of their cash on hand, leaving more money available to do things like renovate or purchase furniture. A seller assist is part of the sale price of the home and will be financed as part of the mortgage. Sellers usually agree to “pay the buyer’s closing costs” as long as their own bottom line is met.
Lenders usually allow the seller assist to total anywhere from 3% to 6% of the purchase price.
Keep in mind, the home will have to appraise for the total purchase price. Additionally, in the Lake Wallenpaupack region of Northeastern PA, buyers will pay the full 2% transfer tax on the seller assist, but both buyer and seller pay 1% transfer tax on the net. Confused?
Here’s an example: If a $250,000 purchase price includes a $10,000 seller assist, the seller will pay $2,400 (1% of the net price of $240,000) while the buyer will pay $2600 (1% of the net price plus 2% of the $10,000 seller assist.)
The closing fees for home buyers can be significant, and there are a lot of variables. As a buyer’s agent, I want my buyers to be well informed and prepared for the costs involved. Feel fee to reach out if you have questions. Call or text me directly at 570-647-5170 or click below to learn more about the services I provide for buyers.More About Karen Rice, Buyer’s Agent