Understanding Closing Costs
Embarking on the journey of homeownership is an exciting milestone, but behind the thrill of finding the perfect home lies an intimidating process and lots of unknowns for home buyers. One of the most common questions we hear from prospective buyers is “How much money will I need to close on a house?” Understanding the financial components of a real estate transaction is vital for prospective buyers. We want to take the intimidation out of buying a home by providing this breakdown of the various fees and costs that a home buyer is responsible for paying when sealing the deal on their dream home.
It is important to note that the fees outlined below are estimates. Closing costs and associated closing fees will vary by lender, based on the buyer’s down payment and closing date. This breakdown of fees is provided only to give buyers a general idea of what closing costs. It is important to discuss closing costs and fees with your lender based on your individual situation.
Your Mortgage Interest Rate
Several factors can determine your mortgage interest rate. Lenders use a combination of these factors to assess your creditworthiness and set the interest rate for your mortgage. Some of the key factors are your credit score, downpayment amount, type of loan, loan to value (LTV) ration, debt to income ratio, locking period and your location. You will see published mortgage interest rates. Understand that your interest rate may be higher or lower than these and it’s important to meet with a lender to get pre-approved based on your economic situation. Once you are under contract on a property your lender will “lock in” your interest rate.
Your Downpayment
3% - 20%+ of the sale price. This is calculated as a percentage of the home’s purchase price. Your downpayment is determined by the amount of cash you have ready to put down on a home. Many first-time home buyers will put as little as 3 or 5% down. We have a few local lenders who will even finance loans with 0% down payments. With most lenders, if you put less than 20% down you will be charged a monthly Mortgage Insurance Premium fee.
Lender Origination Fee
$900-2000
This is the fee the lender charges for their services to you. These vary by lender.
Appraisal Fee
$375-650 (avg for a $300,000-400,000 home, expect to pay more for higher priced homes)
Title Policy (Iowa Title Guaranty)
$175
Title Examination
$200
Pre-Paid Costs:
- Homeowners Insurance $1400 - (generally 12 months is collected at closing and held in
an escrow account. The lender then pays your homeowner’s insurance for you out of
your escrow account. - Prepaid Interest - This depends on how many days of interest you are paying until your
first mortgage payment is due. - Mortgage Insurance Premium $4900 - (only charged if putting less than 20% down)
Recording Fee $150
Buyer Broker Fee
$295 (can vary across brokerages)
Miscellaneous Fees
$100-250 - Credit Report, flood certification fee
BUYER BONUS #1: In Iowa we pay our property taxes in arrears and taxes are due twice a year (6 month installments) in March and September. This means the seller will be giving you a credit towards the property taxes that will be owed. This credit from the seller will help offset some of a buyer’s closing costs. Just remember – when you go to sell the property you will have to give a credit to your buyers. If you are buying a new construction home that has not been fully assessed you will not received this property tax credit, but you will also not have property taxes owed for approximately the first 12-18 months in the home.
BUYER BONUS #2: Generally, a buyer’s first mortgage payment is not due until the month after closing giving them a little breathing room.
