Closing Costs: What Am I Paying For?

Everywhere you turn, there seems to be a fee collected for every service. Closing on a home is no different. United Country Midwest Lifestyle Properties real estate agents and Land Pro’s don’t like surprises and we understand our clients don’t like them either. Keeping our clients informed and knowledgeable throughout the buying and selling process is our top priority. 

Closing costs are necessary fees associated with your home purchase. We will take a look and show you what you are paying for when you close on a home or property.

Standard Closing Costs

Whether selling or purchasing a home or property, you will encounter fees associated with that sale/purchase. To help you understand where those closing fees go, we have broken them down into categories:

1. Lender
2. Real Estate Agent(s)
3. Appraisal
4. Title Company
5. Home Inspection

Lender

The fees from your lender can vary. It would be wise to shop around and ask for a breakdown of the lender’s origination fees. What are origination fees, and how much do they cost? An origination fee is an upfront dollar amount charged to you for the administrative costs of processing your loan application. According to investopedia.com, this fee is an average of .05% to 1% of your loan.

When shopping around for a lender, you can ask the lender if they are willing to reduce or remove any origination fees. For example, a “courier fee” or “documentation prep” may be fees that the lender is willing to reduce or remove. Be aware if some of the fees are reduced or removed, you may end up paying a higher interest rate, which, in the long run, maybe more expensive than paying the origination fees.

Real Estate Agent(s)

Real estate agents do not work for free. As a home seller, you enlist the help of a real estate agent to sell your home. There are many fees associated with the work done to place your home for sale. Agents do not get paid for their hard work unless a property sells. 

The average real estate agent commission, as reported by Redfin was between 5%-6%, acting as the seller and buyer agent. Those percentages break down further when you have two agents – the buyer’s agent receiving 2.5% – 3% in commission, and the seller’s agent receiving 2.5%-3% in commission. 

Appraisal

A home appraisal determines the value of the home. Your lender will request an appraisal of the home you are considering purchasing. This report gives your home value and helps your lender decide an appropriate amount of money to lend you. Additionally, an appraisal acts as a safeguard against inflating home values.

A typical appraisal can run between $250- $400, depending on your geographic location and the type of appraisal needed. There are four types of appraisals:

1. Uniform Residential Appraisal Report (URAR)- This is the most common appraisal required before your lender will approve your mortgage
2. Restricted-Use, Short-form Report, or Drive-by Appraisal– This appraisal is performed by viewing the outside of your home. Usually done by home appraisers or real estate agents to determine a home’s list price.
3. Comparative Market Analysis (CMA)– This is an analysis tool used by real estate agents and sellers. It analyzes school districts, area homes, area shopping, parks, etc. This type of appraisal would not be considered valid by a lender.
4. Online appraisals– Used by a home buyer. Not accepted by lenders to approve a mortgage.

Title Company

A title company researches a property to make sure that the property may be legally sold. They can also perform property surveys and act as a closing agent in your real estate transaction. Title companies will also prepare the abstract and hold escrow payments.

In addition, the title company will issue the buyer title insurance. The buyer pays for a homeowner’s title insurance and the lender’s title insurance. 

The title insurance covers the homeowner from title issues- it protects your investment. The lender’s title insurance protects the money you are lending from the bank.

Home inspection

A home inspection may not be requested for all mortgages, but in many government programs (HUD, FHA), they are a requirement. 

Home inspections provide a detailed report of your prospective home’s condition. A home inspection gives you peace of mind and assurance there are no structural or safety issues. Conversely, the inspection may reveal issues needing attention before you move forward to buy the home.

Closing costs are a normal part of the home-buying experience. United Country Midwest Lifestyle Properties strives to keep the home buying and selling process simple. We are not afraid to answer your questions and look forward to working with you! Give United Country Midwest Lifestyle Properties a call at 608-742-5000. Properties and people are our favorite investments!