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Closing Costs in a Purchase Transaction

Closing costs are a part of every home purchase and are made up of lender fees, title and escrow fees, prepaid items, and escrow account items. In some cases, fees may be credited back to the buyer in the form of a seller or lender credit. Please Inquire about the benefits involving a “no cost loan.” If you have plans to be in your home or your loan for less than 5 years a “no cost loan” can make a great deal of financial sense for you.

Lender Fees – Selecting a lender based solely on the lowest lender fee is not always prudent. For the next 30 days, your home loan is going to be a large focus of your life, and you will want the most out of your lender. Before deciding on the right lender, be sure to ask questions. For example, read recent reviews, check the lender’s ability to return phone calls and emails promptly on nights and weekends. Be sure to inquire about the lender’s ability to communicate important milestones and keep you up-to-date during your transaction, as well as their ability to close in 30 days or less.

Appraisal Fees – As a condition of loan approval, an appraiser confirms the value and condition of your property. The fee for an appraisal is usually between $400 to $600, depending on the price and size of your property.

Recording Fees – These charges are for state and local fees to record your loan and title documents.

Days of Interest – You will be responsible for the interest that will accrue between the day your transaction funds and the end of that calendar month. For example, if your loan funds on January 30th you will be responsible for a single day of interest. Your first mortgage payment will not be due until March 1st. The amount of interest per day is calculated by multiplying your loan amount by your interest rate then dividing by 365.

Title and Escrow Fees – In a purchase transaction, the seller of the property traditionally identifies title and escrow services of the transaction and you will be responsible for your portion of the fees. Your lender will initially estimate these fees and will provide actual fees when escrow has opened.

Property Taxes – Property taxes are calculated as a percentage of the purchase price of your home, plus any additional assessments against your property.

Insurance – This charge is for the insurance you must buy for your property to protect from a loss, such as fire. In a purchase transaction, all lenders will require evidence of one full year of the insurance premium to be paid through escrow at closing.

Initial deposit for your escrow account – This charge is held in an escrow account to pay future recurring charges on your property, such as property taxes and insurance. Escrow accounts are required on all government-insured loans, such as FHA, VA, or USDA loans.

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