We see it often as listing agents – Scottsdale homebuyers that go into the process absolutely clueless about the fees they’ll be required to pay at closing. In fact, most of them think the down payment is the whole ball of wax when it comes to cash outlay. Hey, we don’t blame them; it’s their lender’s fault.
Since lenders don’t seem to be doing an adequate job of counselling homebuyers about the very significant amount in fees they’ll pay at closing, we will. Well, we can’t cover all of them, but these are the biggies.
The amount you’ll pay at closing for your down payment depends on the amount and the type of your loan. Conventional loans require 20 percent of the loan amount as a down payment while the VA and the USDA require no down payment. There is a range of percentages between the two extremes, but plan on paying at least 3 percent of the amount of the loan, minus the amount of your earnest money deposit.
While the down payment will be paid at closing, the rest of the fees you’ll pay cover the cost of transferring the title of the property from the seller to you. While it doesn’t exactly take a village to enact this transfer, a lot of folks work on it and they all want to be paid. Some of these include:
- The appraiser – the buyer usually picks up the tab for the lender’s appraisal.
- Title insurance – the buyer also pays for the lender’s title insurance policy which protects it against anyone coming forward in the future with a claim against the property.
- Lender fees – you will pay an origination fee to cover the cost of processing the loan (again, this involves a number of people). You’ll also typically reimburse the lender for the cost of your credit report, for notary services and you may pay attorney’s fees and for a property survey. As you can imagine, these fees add up quickly and significantly.
- The government – you didn’t really think Uncle Sam wouldn’t be at closing with his hand out did you? Local governments charge for transfer taxes and recording fees.
Expect to pay anywhere from 2 to 5 percent of the loan amount for closing costs.
Your lender will send you an estimate of closing costs within days of applying for the loan. These can change before closing so rely only on the Closing Disclosure you’ll receive shortly before closing – that one is set in stone. The estimate, however, will give you a ballpark figure so that you can get your funds in order by closing.