Taking the Mystery Out of Closing Costs

Buying with a conventional Bank Mortgage:

When Purchasing a home with a conventional bank mortgage there are three types of closing costs:  purchase costs; bank costs; and title charges.  Let’ review each separate, as follows:

1. Costs associated with the Purchase:

A.  Home Inspection: When purchasing an improved property, whether new construction, a renovated home, or an older home, you should have a home inspection performed. Your options include using an engineer or a licensed home Inspector. I suggest you ask your broker for a referral, as the brokerage community usually have a wealth of knowledge and experience with both engineers and Home Inspectors, in terms of thoroughness and expense. Make sure that you properly interview your home inspector and check references. The cost of the home inspection should run in the neighborhood of $500.00-$1,500.00 depending on the size of house and number of other structures on the property. Additionally, most inspectors can and will bring a pest inspector with them, for a minor additional cost, to determine if there is any indication of the presence of wood boring insects or any damage associated therewith. I highly recommend taking advantage of this service, unless the house is new. 

B.  Survey: Unless there is an existing survey, performed within the past several months, you will need to obtain a new or updated survey, certified to you (the buyer), your Lender and Title Company. The cost of the survey will vary depending on the size of the property, however you should budget $1,000.00-$1,500.00. 

C.  Home Owners Insurance: A homeowner’s insurance policy can vary depending on the size and type of construction of the dwelling and the number of accessory structures on the property. Typically, your lender will require, and so should you, an insurance policy which includes replacement value of all of the structures on the property.  You may also require flood insurance in the event that your property is situated in a flood zone. The cost of homeowner’s insurance will usually range from $2,000.00-$5,000.00. However, for large estate types of homes and for properties located in flood zones this cost could be several times that amount. It is imperative to do your homework before you sign a Contract and verify whether the property is located in a flood zone and obtain several cost estimates, as rates can vary significantly depending on the underwriter.

D.  Contract Adjustments: Your contract will require you to reimburse your Seller for pre-paid real property taxes and any fuel in the fuel tank(s), as of the date of closing. This can amount to several hundred dollars to several thousand dollars, depending on the amount of fuel capacity and the month of the closing, in regard to the tax year.

2.  Bank (or Lender) Costs:

A.  Application Fee: While application fees vary significantly from lender to lender, you can expect an application fee of $500.00-$1,000.00.

B.  Appraisal Fee: Your lender will perform an appraisal of the property, usually prior to the issuance of a mortgage commitment. The cost is usually approximately $1,000.00-$1,500.00. 

C.  Bank Attorney Fee: You get to pay your lenders attorney to close your loan. The cost is usually around $1,000.00.

D.  Short Term Interest: Banks collect what is commonly referred to as “short term interest”, this is interest from the day of closing until the end of the month.  Obviously the earlier in the month you close the greater the cost. This amount will range significantly based upon the principal amount of your mortgage and the day of the month you close title. 

E.  “Escrows”: Assuming your lender requires escrow for taxes and insurance, your lender will collect from 3-6 months of real property taxes and homeowners insurance payments at the closing. This can often amount to several thousand of dollars depending on the annual taxes and insurance premium.

3.  Title Charges:

This category is a bit of a misnomer as the title company collects a lot of costs which are actually taxes, filing fees and search fees., etc., as follows:

a. Fee Title Insurance Policy (Title Insurance Policy issued to the Purchaser); This fee is set by the State of New York, roughly .004 times the Purchaser Price.

b. Mortgage Title Insurance Policy issued to Lender; This fee is also set by the State of New York, roughly 25 percent of the Fee Title Cost

c. Peconic Land Preservation Tax; If improved property the cost is the Purchase price minus $250,000.00 times .02; if the property is vacant the exemption if $100,000.00.

d. Mansion Tax. If the Purchase price is equal to or exceeds One Million Dollars the cost is .01 timed the Purchase Price.

e. Municipal Inspections. Usually around $300.00.

f. Endorsements. Usually around $100.00.

g. Filing Fees. These fees have gone up significantly over the past few years.  Budget around $1,000.00 for the Deed and the Mortgage.

Of course you should always consult your real estate attorney and lender and discuss your specific closing costs with them prior to signing a Contract of Sale.