When buying a home, there are costs of doing business which come in the form of additional fees. Here is a list of the four main ones to consider as part of your overall closing costs, what they are, and how much you should expect to budget.
Lender Fees: Your lender fee is what the lender charges the borrower to qualify, approve and fund your loan. Before the mortgage meltdown of 2008, it was common to pay fees in terms of “points”, which are typically one percent of a certain loan amount and would vary on average from 1.5 to 3 points, depending on the loan, its structure, and the borrower’s creditworthiness. Today though in the mortgage industry with there being more regulation in place than in 2008, your lender fee should not exceed $1,000-$1,200 dollars. There are exceptions to this including if your borrower profile requires you to consider private or “hard” money. In both of these cases, it is common to see fees vary from 3 to 4 points, depending on the loan and its structure. The other cost is that of an appraisal. This is where an individual who is certified to give professional valuations of real estate, provides an opinion of value that is satisfactory to the lenders’ requirements and the amount being loaned.
Escrow Fees: The purpose of an escrow company is to serve as a neutral third party, whose primary function is to see that the terms & conditions, timeframes, and instructions of a purchase agreement are completed by both parties as agreed. The typical escrow fee is around $1.10 to $1.20 per thousand dollars of the purchase price. For example, if you are buying a condo for $800,000 and the escrow fee was $1.20 per thousand, your escrow fee would be $800,000 / 1,000 = 800 x $1.20 = $960.00
Title Policy Fees: If you will be obtaining a loan, your lender will require you to have a tile policy. A title policy is essentially insurance to the bank, that the property listed on the purchase contract and Grant Deed, are indeed the same piece of real estate they have agreed to lend on. The title company has a research facility where they research, cross-check and confirm that property addresses and Assessor’s Parcel numbers and lot numbers as part of the transaction are all true and correct. Once this has been verified, they issue an insurance policy to back their verification of the property you are buying and the seller is selling. Costs vary based on the loan amount and yet, estimate around $700 per $500,000 being borrowed.
Inspection Fee: One of the most important considerations in buying a home is to ensure the physical worthiness of the real estate being purchased, is satisfactory to the buyer. Part of this process includes having a professional home inspection done. The fee for this inspection varies based on square footage, with condos normally being less. Average fees for an inspection can range from $350-$550, depending on the company and what all is inspected.
An easy way to calculate the estimated closing costs is to factor 2.25% of the purchase price. So, on a $1,000,000 purchase, you would budget your closings costs to the $22,5000, which should leave you enough to cover any unforeseen charges and maybe even receive a refund check back from the escrow company for any overage. Depending upon the type of loan you are obtaining and the creative structure of some deals, closing costs can be negotiated as part of the contract, paid by the one party, or credited from one party to another. This is oftentimes seen on FHA and VA loans where there are typically credits from the seller to the buyer towards closing costs.
If you have questions about closing costs, would like to learn more about the buying process, or about the LA Westside market, don’t hesitate to call/text us at 310-403-7381 or send us an email at email@example.com.