Photo courtesy of Assurance Financial
You Ask, We Answer: What Are Closing Costs?
What is a closing?
What fees will I pay at closing?
• Application fee, appraisal fee, credit report fee, flood certification: While that seems like quite a list of fees, there may be good news: You may have already paid application and credit report fees to your mortgage lender when you first applied for your mortgage; in fact, credit report fees are often rolled into the mortgage application fee.
The appraisal fee is paid to the appraisal company (or bank) to confirm that the house you’re purchasing is being done so at fair market value; flood certification ensures that the home is not located in a flood zone. If it is found to be in a flood zone, you will be required to purchase flood insurance, to be paid at a different time.
• Attorney fee, closing fee, title search fee, title insurance: Your attorney will be paid for his or her hours spent preparing your contract paperwork, ironing out any issues that may arise and protecting you as you enter into a legally binding contract.
In Connecticut, closing attorneys also handle title searches and title insurance, and their fees will reflect these costs. Title insurance is a crucial part of buying a home, as it will protect you against title search errors, defects and even disputes that may arise after you have purchased the property—and will help to protect you should issues arise when or if you need to sell the house in the future.
• Escrow deposit: Depending on your contract and loan, you may already have money in escrow to cover homeowner’s insurance costs, property tax or other fees. If you don’t yet have money in escrow, talk to your attorney and your Calcagni Real Estate agent about how much you’ll need to have for these fees prior to closing; some loans may require several months of property tax to be paid, along with mortgage insurance.
• PMI: If you’re put down less than 20% of your home’s purchase price, you may be required to pay Private Mortgage Insurance, or PMI. If this is the case, you may be required to pay the first month at closing. Check with your mortgage lender and your attorney so you can manage expectations—and funds!—accordingly.
• Survey fee: While this is rare, this may be done if your home needs to be surveyed to verify property lines and things like shared fences. The company that conducts this survey, or the bank who works with them, will need to be paid for their services.
• Underwriting fee: Underwriters research whether or not you qualify for your bank’s mortgage loan and approve the loan accordingly. Your loan officer will be able to tell you if the underwriting fee is covered in your mortgage application fees.
• Transfer tax: Also known as the real estate conveyance tax, this tax is paid by the seller when the title passes from the seller to the buyer. In Connecticut real estate, state and municipal rates are added together and applied to the property’s sales price to form the total tax rate for a property conveyance.
How much are closing costs?
While closing costs can, and will, vary broadly, many Connecticut buyers can expect to pay approximately 2-5% of their purchase price in closing costs.
The good news? You have invaluable resources in your Calcagni Real Estate agent and in your Connecticut real estate attorney. By asking them informed questions prior to your real estate closing, you will avoid surprises—so you can focus on the fun business of making your house a home.