The route to buying a home does not start the moment you window shop on Zillow, Realtor, Trulia, Opendoor, and all other online real estate marketplaces you run into. For a lot of people, the journey starts when they finally begin to regularly set aside money to buy their new home. This is because saving money for a house is not an overnight thing — even for those born with a silver spoon.
In fact, as reported by CNBC, it will take about six years for a person to save up for the downpayment of a median-sized home in Atlanta, considering that he will consistently set aside 20% of his monthly income. On top of that, you still have to prepare for prepayments and closing costs. Additionally, unlike downpayments, where the value is usually 20% of the total contract price, closing costs are highly variable due to different:
- Property Taxes per city
- Homeowner’s Association Fees
- Home Insurance Premiums
- Home Warranties and;
- Types of Loans
As much as you can ask your seller to shoulder the closing costs, it would be best to prepare for them just in case your seller would disagree. So here is a breakdown of the closing costs you can expect when buying a home.
Legal Fees
In the State of Georgia, a real estate attorney is required to sign off on all closing-related transactions. To do this, they have to review all the contracts, reports, and other documents to make sure that everything is within the law and the terms of the purchase contract aren’t placing you (the buyer) at a great disadvantage.
According to Thumbtack, real estate lawyers can cost between $150 – $350 / hour. However, some attorneys also charge a flat fee (about $750 – $1,250) based on the type of service, regardless of how much the house is. Just remember that the more experienced your attorney is, the higher the fees will be.
Lender Fees, Mortgage Loan Charges, and Prepayments
Next are your lender fees or your mortgage loan charges. Lender fees vary per type of loan — FHA loan, VA loan, conventional loan, etc. Typically, lender fees include your origination fee, processing fee, tax services, underwriting fee, the downpayment fee, lender title insurance, appraisal, credit report, and prepaid interest. Yes, you’re going to have to pay the interest fee for your mortgage in advance, covering the period between the date of closing and your first monthly mortgage payment.
According to Value Penguin’s research involving four of the country’s biggest banks — Bank of America, Chase, Citibank, and Wells Fargo — the average lender and mortgage costs during closing is around $7,227 for a $198,000 home. This includes six months worth of property taxes, 15 days of prepaid interest, one year of homeowner’s insurance, and one year of mortgage insurance apart from the other lender fees mentioned above.
Note that the period of advanced payment will vary per lender. Some lenders will require six months’ worth, while others will require one year’s worth of mortgage. That’s why it’s important to get a quote from at least three different lenders, so you’ll see which one would be the most ideal for your situation.
Source: Zillow, Mortgage Rates as of August 1, 2021
Prepayments are also called “impounds”. This is because they will be deposited into an escrow account by your title company. As much as this seems too expensive, just think about not having to deal with paying taxes and insurance in the next few months because you already had it covered during closing. When it’s time to pay your monthly premium, it will now be the responsibility of your lender to get from your escrow account and pay the insurance company until your impounds have been exhausted.
Title Company Fees
Title companies have the responsibility to open and manage your escrow account and verify whether or not the title of the house you are buying is legitimate and free of any:
- possible objections and restrictions
- outstanding property taxes
- outstanding mortgage
- unpaid homeowner’s association dues
- easements (a document giving someone else the right to “use” the property) and;
- leases
To do the verification, the company will have to do a title search and a property survey. Likewise, the seller will have to submit an Abstract of Title — a narrative of the home’s ownership history. Once validated, the title company will write an Opinion of Title, stating that the seller presented a valid title and is open to issuing a title insurance for you.
Title insurance alone costs between 0.5%-1% of the purchase price. This covers both the owner’s (you) policy and the lender’s policy. This also equates to a premium of $1,920 – $3,840 for a median-priced home of $384,000 in Atlanta as of April 2021. If you add that to the title search fee, the title opinion fee, and other service fees, you’ll know you have to prepare a few thousand dollars more to your closing budget.
Miscellaneous Fees
Lastly, miscellaneous fees include your home warranty, transfer fees (for deeds of transfer), real estate agent commission fee, and other documentation fees. Commission fees are the most expensive in this category and costs around 5%-6% of the purchase price on average. On the other hand, a home warranty ensures that you get free or discounted repairs and replacements of the home’s structural components, fixtures, appliances, and the like — although this is usually offered as a concession.
The bottom line is that several items constitute your closing costs. They will vary per company, per location, your approved mortgage, and how clean the title is. If you want to get a rough estimate of your closing costs, Smart Asset offers a closing cost calculator that only needs you to input your target home price, downpayment, and the location.
If you need a reliable real estate broker who can help you negotiate a lower closing cost, contact us at HomeSold GA at 770 668 4888. Home buying can be overwhelming, but you can save a lot of time, money, and energy with the right professionals.