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Mitch Rolsky
Mitch Rolsky - REALTOR®

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Home Buying Closing Costs ???

Home Buying Closing CostsClosing Costs … You will need these plus your down payment.
These include Items like government recording fees, title insurance and property inspections. Other fees will vary based on if you are paying cash for the property or obtaining a mortgage loan. There can also be some small differences in fees based on if the property is single family home or one of the many types of condos.

Home inspections are an evaluation of a home’s condition by a trained expert. During a home inspection, a qualified inspector takes an in-depth and impartial look at the property you plan to buy. The cost for home inspections is mainly based on the size of the home. While a typical inspection will run around $350-$400 inspections overall can range from $285 to $1000. The inspector will:

• Evaluate the physical condition: the structure, construction and mechanical systems. • Identify items that should be repaired or replaced. • Estimate the remaining useful life of the major systems (such as electrical, plumbing, heating, air conditioning), equipment, structure and finishes.

  Having a home inspection completed could be the best money you will ever spend. You should have a home inspection done even with new construction. In Fact it’s probably a good idea to have inspections completed during construction stage if you are having the home built.   Radon Testing is done to insure that the radon levels in the home are at or below accepted EPA levels. Although you cannot see, smell, or taste radon when you breathe air containing radon, per the EPA, you increase your risk of getting lung cancer. In fact, the Surgeon General of the United States has warned that radon is the second leading cause of lung cancer in the United States today. Plus if you smoke and your home has high radon levels, your risk of lung cancer is especially high. The EPA recommends testing for Radon up to the 3rd floor in properties, including in high rise condominiums. The cost for the testing itself ranges from from $100-$150 and is typically paid for at the time of testing. Mitch also normally asks Seller’s to pay for Radon testing and mitigation which can cost an additional $1200-$3000. However, just like purchase price the buyer’s willingness to mitigate radon is subject to negotiation. Mitch always makes sure if radon is an issue and the seller is unwilling or unable to mitigate that you as a buyer can walk away with your earnest money if you don’t want to mitigate at your own expense.   Termite Inspections are done to insure that there is not active termite populations or substantial past termite damage that could result in a major expense to repair.

Many Buyer’s belive that Sellers delay maintenance when they know they will be selling a home. Since home buyers hope to minimize the financial impact after closing related to malfunctions with the components in their new home most will ask the Seller to pay for a home warranty.  First time home buyers with no experience maintaining a home may consider having a home warranty a critical piece of their offer on a property.

 

Home Warranty plans provide for specific types of coverage, be sure to fully evaluate the coverage in each policy before selecting a plan. Typically:

  • If a home system or appliance breaks or stops working, the home owner calls the home warranty company.
  • The home warranty company calls a provider with which it has a business arrangement.
  • The specific provider calls the home owner to make an appointment.
  • The provider fixes the problem. If an appliance is malfunctioning and cannot be repaired, depending on contract coverage, the home warranty company will pay to replace and install the appliance.
  • The home owner pays a small deductible usually $75- $100.

 

Home warranty plans will run $350 – $600 with most plans costing $400 to $500. Most Buyers will ask for the Seller to pay for the plan but like many things this is 100% negotiable. If the Seller feels they are selling the home for less than they expected they will generally try to exclude this expense.

While lenders will require that you arrange for homeowner’s insurance coverage (sometimes called hazard insurance) when there is a mortgage involved it’s strongly suggested even with cash sales.   This insurance protects against physical damage to the home by fire, wind, vandalism, and other causes, and ensures that your, and any lender’s investment, in the property will be secured even if the house is destroyed. If you are buying a condominium, a portion of the hazard insurance may be part of your monthly condominium fee. But, you should still secure insurance coverage for the portion of the Condo not covered by the association along with covering your home furnishings and valuables. Most lenders want to see you carry coverage on at least 20% of the purchase price. But keep in mind that with condos you, as the owner, need to typically insure from the drywall on the ceiling down, from the flooring up and from the drywall in from the studs. This means you insurance policy should cover all wall coverings, flooring, lighting, appliances, bathroom finishes along with typically ALL windows and doors and limited common areas like any balcony, patios or decks etc.   Flood Insurance while required by lenders is still strongly encouraged with Cash sales. This insurance compensates you for physical property damage resulting from flooding. It is also required any time you purchase a properties located in federally designated flood areas.
Most lenders require a title insurance policy to protect the lender against an error in the results of the title search. If a problem arises, the insurance covers the lender’s investment in the mortgage.

 

There are typically two title insurance policy’s. Both are one-time premiums are usually based on the purchase price. One is typically provided at an expense to the seller showing that the seller has the ability to sell the home without any issues. The second policy is for the benefit of the lender who is extending a new mortgage and is typically paid by the buyer.

 

The Seller’s policy is the more expensive of the polices.  The typical amount for the lender’s title insurance will run $300-$500

 

A closing protection letter (sometimes “insured closing letter” or “CPL”) forms a contract between a title insurance underwriter and a lender, in which the underwriter agrees to protect the lender for actual losses caused by certain kinds of misconduct by the closing agent. Examples would be failure to follow written closing instructions or fraud or dishonesty in handling the lender’s funds or documents. The typical cost for the CPL is $25-$45

An appraisal fee of typically $300-$500 pays for an independent determination, by a licensed appraiser, of the value of the home and lot you want to purchase or refinance. While lenders want to be sure that the purchased property is worth at least as much as the loan amount you as the buyer want to make sure you are not over paying for a property which is why you should have this done even with cash purchases.   All of Mitch’s purchase agreements give you, as the buyer, the ability to get you earnest money back and walk away from a sale if the property does not appraise for at least as much as you have agreed to pay for the property. Typically, but not always, most sellers will offer to lower the purchase price to match the appraisal to try to keep a deal together.   Some lenders and brokers include the appraisal fee in the application fee; you can ask the lender for a copy of the appraisal.
Many Brokerages charge a Transaction or Commission related to Document Management for the purchase. With Mitch this amount is $179 and is only paid if you close on a place and more often than not this is the only amount you as a buyer will pay for your agent’s services. The exception would be if you have an Exclusive Buyer’s Agent Agreement in Place that stipulates a minimum percentage of the purchase price that is higher than the seller is paying as buyer’s agent commission (BAC).   Exclusive Buyer Agency Agreements are NOT common place. Your Agent should tell you, at the time of any offer, if the BAC is lower than then any Buyers Agent Agreement stipulates. This way you know what amount if any you will be responsible for as part of your closing costs BEFORE you write an offer on the property.   Mitch generally only has Exclusive Buyer Agent Agreements that are specific to a particular property, that you may want to write an offer on, when that property is a bank owned or a short sale. Mitch will share with you the reasons why he uses these agreements on these properties including how it helps protects you as a buyer from typical negotiating strategy’s lenders use with short sales and foreclosures.
This would include the fees to record the mortgage and deed. This will generally run $80 -$100.
While Lenders usually require a property survey on many homes it’s sill a strongly recommended to have a survey done even with Cash sales unless the property is a Condominium.   A survey confirms the location of buildings and improvements on the land you are purchasing. Some lenders require a complete (and more costly) staked survey to ensure that the house and other structures are legally where you and the seller say they are. Typically a less costly Survey report is sufficient to ensure that all structures, fences etc are indeed within the property. A Survey typically runs from $125 to $600. The larger the property, and/or if you want the lot corners to have stakes placed will push these fees towards the higher end of the range and possibly even higher.   If you know you plan to add a fence or build more structures then it probably makes sense to have a staked survey completed to avoid paying twice for those costs when the time comes to do the work.   If you are buying a condominium in a high rise it probably does not make sense to spend money on a survey unless the lender requires it.
Many Homeowner Associations (HOA) have fees associated with setting you up in their systems. This fee typically ranges from $100 to $300.   These fees are especially common with condominium developments and often times happen with new home construction where the initial owner must pay an amount equal to $300-$500 to help fund the HOA reserves as a new development.
Closings are typically conducted by title insurance companies who charge generally $300-$400 for this service. Typically all parties involved in the sale–the buyer; the seller; any lender; the real estate agents; and representatives from the title firm- meet to sign forms and transfer funds.   This fee is typically shared equally between buyer and seller but is negotiated as part of every purchase agreement.
A temporary buydown gives a borrower a reduced monthly payment during the first few years of a home loan and is typically paid for in an initial lump sum made by the seller, lender, or borrower.   A permanent buydown is paid the same way but reduces the interest rate over the entire life of a home loan.   Buydowns do not happen very often unless you are working with new home construction and semi-custom or production builder.
In Indiana Real Estate taxes are billed 2 x per year. 1/2 of the year is billed in the spring and the 2nd payment is billed and due in the fall. However, the taxes are bill one year behind.  So taxes paid during the current year are actually covering the prior year.   Typically most Sellers will pay taxes on the property for when they owned it. So, this means that sellers will almost always owe taxes that often times might not even be due to the taxing authority yet.   In some instances the lender may require these taxes be paid at closing to the state while at other times, since there will be enough time to escrow or build up the amount that will be due, and the lender will allow these taxes to be given to the buyer in the form of a Credit against what the buyer would otherwise bring to closing. Note: While the buyer may be given this credit at closing the buyer must qualify for the loan without using any credit.   As a general rule the amount of this credit, on homes being resold, will be either just over or just under a full year’s worth of real estate taxes.  On new construction, because there was not a home to tax in the prior year, there typically is no substantial real estate credit.  
Lenders will typically allow the seller to pay up to 3% of the Buyer’s Closing costs and prepaids. Doing this means that the purchase price is increased by the amount of the Seller Assistance which means these amounts are then included in an increased mortgage amount.   While including Seller assistance may help you be able to afford the home you want, because we are adding up to 3% on to the net purchase price, we have to be able to buy the home at the ‘right price’ so that the extra 3% does not push the cost of the home with seller assistance beyond the appraised value.