If you're thinking of buying a home -- whether you are a first-time homebuyer or you've bought homes before -- you may be wondering what your total costs will be.
Buying a home involves more than just securing your mortgage, bringing your downpayment to closing, and getting the keys to your new house. Sometimes, the "sticker shock" of the unexpected costs of buying a house can feel discouraging to a buyer, so we want you to have a good idea of all of the costs associated with your closing.
Federal regulations around mortgage lending require a lot more transparency around the costs and fees associated with the transaction than they used to, but the process and the costs can still seem like a mystery. (NOTE: this does not include any money you may spend prior to closing, such as the cost of your home inspection(s), but is meant to give you an idea of the funds due on closing day.)
What Are Closing Costs?
Closing costs are any fees that you, as a homebuyer, will need to bring to closing in addition to your downpayment.
Having said that, you may have the opportunity to ask the seller for a contribution toward your closing costs, as a part of the contract negotiation process. It's important to remember, however, that every concession you ask a seller to make in the contract (i.e., a home warranty or a contribution toward your closing costs) comes off the seller's bottom line. If you offer the seller their asking price, but then ask for $5,000 toward your closing costs, you are actually not making a full-price off, since the bottom line to the seller's net proceeds is now $5,000 less than their asking price.
Many sellers, though, may be willing to consider these types of concessions in order to make the deal work and get their home sold. It's all part of the negotiation, and in real estate, (almost) everything is negotiable. One more thing to keep in mind, your lender may limit the amount that a seller can concede/contribute to you as part of your transaction. This doesn't mean they will limit the amount of money a seller can reduce their price during the transaction; however, depending on what type of loan you are applying for, the lender and/or the federal lending guidelines might limit the amount a seller can give you, at closing, toward your closing costs. Your REALTOR® and your lender should work together to make sure that your contract doesn't exceed this limit (because any funds the lender can't use will just go back in the seller's pocket).
How Much Are Closing Costs?
Here's where the answers get a little trickier and more complex, so settle in for a long read...
Your closing costs will be based on a variety of factors: the purchase price of the home you are purchasing, the fees the closing attorney charges for their services, the fees your lender charges for their services, and even the time of year that you are closing (more on that below).
There are two types of fees associated with a real estate closing -- fixed costs and variable costs. The fixed costs will be either a fixed amount (i.e., the closing attorney will charge a set dollar amount to conduct your closing) or an amount based on the contract price of the home you are purchasing (i.e., Georgia Transfer Tax is $1.00 for each $1,000 of the purchase price). The fixed costs for your home purchase are the costs that an experienced, knowledgeable REALTOR® can quote for you, in helping you to anticipate what your closing costs might be.
The variable costs are those that will vary based on which lender you choose to work with. Each lender has their own fee structure, and those may even differ based on the type of mortgage loan you are applying for. We will discuss and define them in more detail below.
Fees That You (or Your REALTOR®) Can Calculate
In Georgia, there will be two types of taxes that you are charged in association with your real estate purchase. Every buyer is charged a transfer tax, and every buyer obtaining a mortgage is also changed an intangible tax.
Georgia Transfer Tax. Tax fee thatis charged on every real estate transaction. The tax amounts to $1.00 for every $1,000 of the contract purchase price. For example, if you are paying $250,000 for a home, your Georgia transfer tax would be $250. CALCULATE the Georgia Transfer Tax LIKE THIS: $250,000/1,000 = $250 OR Purchase Price/1,000 = Transfer Tax
Georgia Intangible Tax. Tax fee thatis charged on every real estate transaction for which there is a mortgage loan (in other words, you are not paying cash for the full price of the home at closing. The tax amounts to $3.00 for every $1,000 of the contract mortgage loan amount. For example, if you are paying $250,000 for a home and you are putting 20% down, your Georgia transfer tax would be $250. CALCULATE the Georgia Intangible Tax LIKE THIS: $250,000 x .8 = $200,000/1,000 = 200 x $3 = $600 OR (Purchase Price x %loan amount)/1,000 and then x $3 = Intangible Tax
Fees That You (or Your REALTOR®) Need to Ask Your Closing Attorney For
The fees that the closing attorney charges include an array of services, either that they provide in-house or outsource (such as the court recording fees). If you are closing with the attorney that your REALTOR® recommended to and/or discussed with you, it's likely they already have an idea of those fees. If you're closing with the attorney that the seller or listing agent stipulated, you or your REALTOR® can call that attorney to request their fee sheet.
Below are a list of most of the fees you can expect for a residential single-family home, townhouse, or condominium transaction in Georgia, although keep in mind that there may always be exceptions.
Settlement or Closing Fee. The fee paid to the escrow or title agent who handles your closing. You may also think of this as the attorney's fee for the closing.Typical range: $600-800
Recording Fee. Thefee charged by a government agency for registering or recording the purchase or sale of a piece of real estate. Recording fees cover the costs of the services provided by the clerk or recording agency that must maintain complete official documents. Typical fee: approximately $50
Closing Protection Letter. The CPL is a form of insurance issued by title insurance companies, insuring the actions of a particular attorney, agent, and/or closer (in other words, the authorized closer) in conducting a real estate closing. This insurance is offered primarily to lenders, but can also be requested by buyers. Typical range: $40-60
Title Examination. Theexamination of the documents found during the title search that affect the title to the property. The closing attorney or title company verifies who the legal owner is and any determines the debts owed against the property.Typical range: $175-250
Title Binder. Atemporary form of real estate insurance coverage related to the transfer of ownership, that protects you and your purchase prior to your title insurance policy, and is a commitment by the title insurance company to providing you with a title insurance policy. Typical range: $50-100
Survey. The detailed assessment that discloses the exact boundaries of the property, as well as things like gas lines, roads, walls, easements, encroachments, etc. (NOTE: In most cases, surveys are not a requirement of closing; they are optional but highly recommended to make sure that your property doesn't encroach on your neighbors' and vice versa. I include it under the closing attorney section because they may offer to order a survey on your behalf and they will read the survey prior to closing to make sure there are no encroachments or any other defects to the property that the seller didn't disclose or maybe didn't know about. You can read more about the importance of getting a survey, here.)
Lender's Title Insurance. Policy that protects the lender against any legal defects to the title that may arise or be discovered after the closing, during the buyer's ownership of the property. The cost of the policy is dependent upon the price of the property and the underwriting guidelines of the title insurance company. Most firms issue title insurance through multiple title insurance underwriters. Premium rates are determined by the underwriter chosen, the type of policy issued and the sales price and loan amount.
Owner’s Title Insurance. Policy that protects the borrower against any legal defects to the title that may arise or be discovered after the closing, during the buyer's ownership of the property and in perpetuity. Buyers should hold onto their copy of their Owner's Title Insurance policy forever. The cost of the policy is dependent upon the price of the property and the underwriting guidelines of the title insurance company. Most firms issue title insurance through multiple title insurance underwriters. Premium rates are determined by the underwriter chosen, the type of policy issued and the sales price and loan amount. For specific premium rate quotes, your REALTOR® can contact the closing attorney; however, buyers do not have the option to show for title insurance (in other words, it's different than, say, shopping for homeowner's insurance).
Fees That You Need to Ask Your Lender For
There may be a number of fees that you will need to get your lender and/or the closing attorney to give you. With a simple phone call or email, you (or your REALTOR®) can secure the closing attorney's fee sheet; similarly, your lender should disclose their fees (or the calculation to figure out those fees by sending you an email or going over those numbers on the phone with you.
While many closing attorneys' fees will be comparable and competitive with one another, the fees that lenders charge to borrowers can be a huge factor in helping you to decide which lender(s) to consider using. If a lender's advertising makes it seem as though their services are free, let that be a reminder to you to ask for a complete list of all of the fees that will be associated with your mortgage loan process; as with anything, if it seems too good to be true...it usually is.
Origination Fee, Underwriting Fee, Processing Fee, etc. These are the names of the fee(s) charged by your lender for administrative costs associated with your mortgage application, processing, and underwriting. Some lenders may charge one or more of these fees to you, the borrower, and may call them any one of these names. Typical range: can very greatly by lender; these are the important numbers to focus on when you are shopping to find the right lender and best loan product for you. Click here to read more about shopping for a lender and finding the right one for you.
Flood Certification. Documentation confirming the property’s status within a flood zone from the Federal Emergency Management Agency (FEMA). Typical range: $5-15
Credit Report. The lender will need to pull your credit report, so you can expect to see a charge for this service. Typical range: can depend based on borrower and their credit history and number of times lender requires credit supplements to be updated
Tax Service Fee. This fee is assessed and collected by a lender to ensure that mortgagors pay their property taxes on time. Tax service fees exist because lenders want to protect their access to collateral if a borrower defaults. Typical range: $80-100
Verification of Employment (VOE) or Electronic VOE. The fee charged by the lender to review the employment history of the borrower(s), to determine the borrower's job stability and cross-reference income history with that stated on their loan application. Typical range: $20-30
Points. Mortgage discount points are a fee paid to lower the interest rate on a mortgage loan, which amounts to 1% of the loan amount. For example, on a $200,000 mortgage, one point costs $2,000 and would result in a .25% reduction in the interest rate on the loan. Click here to read a great article explaining discount points in more detail.
Homeowner's Insurance. Your lender will require that you obtain homeowner's insurance and provide proof that you have set up that policy prior to closing (this will be a condition of your loan approval. As with any service or product you can shop or, we recommend calling several insurance providers and comparing rates to get the best coverage for the best price for your new home. (Click here to read more about homeowner's insurance.)
Homeowner's Association (HOA) Initiation Fee, New Account Fee or Other Similar Fee(s). If you are purchasing a home with a mandatory Homeowner's Association or Condominium Association, you will have fees associated with being a new homeowner in that HOA. In Georgia, these fees will be disclosed on the Community Association Disclosure form (and if the seller did not disclose them or under-disclosed them, they become the seller's fee, rather than yours, at closing).
Condominium Association Payments (other than new account fees). If you are purchasing a condo or a townhouse that is condominium ownership (as opposed to fee simple), the HOA may require that the closing attorney collect one or two months of your future monthly dues in advance, to allow for time for you to get settled, set up online payment, get your payment coupon book for them, and generally not have your first or second payment be delinquent and rack up any late fees.
Escrow Property Taxes and Homeowner's Insurance. This is a fee that is property-specific but also determined by the lender, so you will want to consult with your lender as to how much to expect this amount to be. Your lender will likely ask you for a copy of the previous and/or current years' property tax bill, which your REALTOR® can provide. This cost represents the amount of money destined to pay property taxes held by a third party until the real estate transaction is complete. Property taxes are a government levy based on the market value (as assessed by a local tax assessor) of the property.(You can read more about escrow accounts and why lenders usually require them, here.)
Fees That May Either Appear as a Fee or a Credit
On your closing statement, you may also see some amounts that appear as a credit (for example, when you set up your escrow account -- the account your lender will set up from which they will pay your annual property taxes and your annual homeowner's insurance renewal for you -- they will collect a certain number of months' worth and then likely credit you back if their initial calculation is "too high." This is a common occurrence and appears on most closing statements to show transparency in accounting.).
However, there are some fees that, depending on the time of year that you are purchasing, will appear as either a fee or a credit. These are the annual property taxes and the annual or monthly HOA fees.
Property taxes. If your closing takes place between January and August or September, the seller has not yet paid the annual property tax bill (as the bill will not come out until just about that time). If the property taxes have not yet been paid, the seller will give a credit to you for the prorated amount of the annual property tax bill from January 1 of the year up until the closing date. If your closing takes place from September through the end of the year and the seller has already paid the property tax bill, then you will credit the seller for your portion of your property tax bill from the date of closing through December 31 of that year. In short, each party will owe for the prorated daily amount of the property taxes for the part of the year they own the home. The closing attorney figures this proration as part of your total costs/credits at closing.
Homeowner’s Association dues. Generally, there are two kinds of HOAs — an HOA with annual dues and an HOA with monthly dues. If the home is located in a neighborhood or complex in which homeowners pay annual HOA dues, the proration will work similarly to your property taxes, above. If you are closing after the date on which the seller has already paid the annual HOA dues, thenyou will credit the seller for your portion of the dues from the closing date through the end of the year. If you are closing before the seller has paid the annual HOA dues, the seller will give a credit to you for their portion of the total dues from January 1 until the closing date. If the HOA dues are paid monthly (or quarterly, etc.), the closing attorney will prorate based on the day of the month on which we are closing (or possibly even based on a quarterly calculation). Once again, each party will owe for the prorated amount of the HOA dues for the part of the year (or the month or the quarter) during they own the home. The closing attorney also figures this proration, based on the information they receive in the HOA account statement letter, which is an official letter from the HOA showing that the seller's disclosure of fees in the Community Association Disclosure was correct, outlining any other fees for the property, and assessing whether the seller is paid-in-full and up-to-date on all payments and fees with no liens, late fees, or delinquencies on the property.