What are closing costs and how much are they?

closing costs to purchase a Spring Texas houseIf you are thinking about buying a Spring Texas home, you will soon hear either your Realtor or your loan officer mention the phrase “closing costs”.  Closing costs are the fees associated with buying a home.  It is money you will need in addition to your down payment.  Closing costs vary from state to state and from city to city.

When you purchase a home in Spring Texas, your closing costs will include some if not all of the following fees:

Loan origination – fee charged by your lender for originating the loan.  The fee is typically 1% of the loan value.  Your lender will have available loan products that do not have a loan origination fee but they will have a higher mortgage interest rate.  The loan product that is best for you will depend upon your individual situation and how long you plan on living in the home.

Appraisal –  fee charged by your lender for the appraisal of the home you are buying. The appraisal costs between $400 to $500

Credit Report, Tax Service, Flood Check, Warehouse Fee, Messenger Fee – all fees charged by your lender. The total of the fees range from $200 to $300.

Underwriting, Loan administration, and Verification – all fees charged by your lender. The total of the fees range from $500 to $1,000.

Survey – identifies how the property fits on the lot, encroachments, building set back lines, and utility easements. Costs between $425 and $500.

Escrow – charged by the title company for performing the closing of the real estate transaction. Fee ranges from $350 to $450.

Lenders title policy  – charged by the title company. It is a title policy for the benefit of the lender. Ranges from $100 to $300.

Attorney  – charged by the attorneys who prepare the documents. Ranges from $100 to $250.

Recording – charged by the title company for recording the deed, the mortgage, and water district notices. Range from $100 to $200.

HOA Transfer – charged by the Home Owners Association (HOA) to change their records from the sellers name to the buyers name. Range from $100 to $350.

After this long list of fees you are probably thinking that is enough fees already but unfortunately we aren’t done yet.  Because now we need to talk about “prepaids”.  Prepaids are expenses you are paying for in advance.

Prepaids will include some if not all of the following:

Homeowners / Hazard Insurance – your first year’s homeowners insurance premium will be paid at closing.  Homeowners insurance varies based upon the age of the home and the value of the home.

Interest – your lender will charge you interest on the loan from the date you close on the loan to the end of the month.

Escrow– if your loan to value ratio is less than 80%, your lender will require you to set up escrows for homeowners insurance and property taxes. The homeowners insurance escrow will be for 2 to 3 months of the montly cost of homeowners insurance and the real estate taxes will be 3 months of the monthly cost of real estate taxes.

Annual HOA – HOA fees are paid in advance. Thus the sellers who have typically already paid them for the entire year.  You will give the sellers a credit for the remaining portion of the year in which you will own the house.

In Spring Texas, closing costs + prepaid costs typically run between 3% to 4.5% of the loan value. By now you have probably come to the conclusion that there are a lot of costs associated with buying a home and you are right.  It certainly seems like everyone has their hand in your pocket for their own little fee of some sort or the other. The only good news is the majority of the time you can negotiate with the sellers to get them to pay for some or all of the closing costs and prepaids.

When you are trying to get a handle on how much money you will need to close on a home in Spring Texas, remember you will need more money than just your down payment.  You will also need money to cover the closing costs and prepaids.