One of the most important considerations for clients making an offer on a house is the cost of the transaction, over and above the purchase price of the property. While it is impossible to give detailed closing costs much before close, this article should serve as a fairly accurate estimate of what a typical buyer could expect in a transaction.
There are three primary categories of closing costs in a purchase, legal/title costs, bank costs, and “pre-paid” items (examples are: tax adjustments with the Seller, pre-paid interest, tax and insurance escrows). I’ll give an outline of what is included in each category and an estimate of what to expect.
Legal/Title Charges:
Attorney’s Fees:
This is the fee your lawyer charges you for representation in the transaction. Fees vary, but I would expect to pay somewhere in the range of $1,000 to 2,000 for legal fees, depending on the lawyer and specifics of the transaction.
Title Search Fees:
This is the fee for the title searcher to search the land records, building department, health department and other municipal agencies. The title search is usually ordered through your attorney and should run from $400-$450.
Title Insurance:
This is also usually procured through your attorney. If you are taking a mortgage, your bank will require you to purchase a lender’s title policy and virtually all buyer’s purchase an owner’s policy. Both policies are issued for a single premium based on the purchase price.
An estimate of the premiums for an enhanced title policy (which we recommend for virtually all clients) are:
|
Purchase Price |
Premium Estimate |
|
$500,000 |
$2,100-2,200 |
|
$750,000 |
$2,950-3,100 |
|
$1,000,000 |
$3,700-4,000 |
|
$1,500,000 |
$5,500-6,000 |
One thing many Buyer’s do not realize is their attorney receives a portion of the title insurance premium for issuing the policies. The attorney’s commission does not change the cost of the policy as the title insurers are required to file their rates for approval with the state Insurance Commission and the filed rates are what must be charged.
Bank Costs:
These costs are determined by your lender but in most circumstances run around $1,500. The fees typically include an origination fee, credit report fee, flood certification fee, tax service fee, and appraisal fee. There also will be a recording fee (generally around $200) to record the closing documents on the land records of the Town where the property is.
Pre-Paids:
This category includes your pre-paid interest on your mortgage, escrows, and seller adjustments and all vary depending upon what time of year you close, whether your bank is requiring escrows for taxes and insurance, and what day of the month you close. A quick guide:
Pre-paid interest is charged for the portion of the month between the day of closing and the end of the month. For example, if you close on the 10th of the month and the month has 31 days, you would be charged 21 days interest up front. You can calculate the amount by calculating the per day interest on your loan and multiplying by the number of days.
Taxes are typically adjusted between buyers and sellers as well as escrowed by the lender for future taxes. If taxes are paid semi-annually and being escrowed, you should plan on paying 9-10 months of taxes at closing. If taxes are paid quarterly and escrowed, I would plan 5-6 months.
If you have any questions regarding any of this information or would like a more detailed estimate of closing costs on a purchase of real estate, please do not hesitate to contact us!
