The Hidden Costs of Homebuying: What You Need to Know About Closing Costs
n: the extra amounts of money that people need to pay when they buy a house
Money Doesn't Grow on Trees - You Gotta Pay to Borrow it
Closing costs are an inevitable part of buying a home. They are the fees you have to pay when you close the loan on your new home. If you’re not using a loan and paying cash, your closing costs are typically lower than if you are using a loan. But regardless of your payment method, you’re likely to pay for certain things like title insurance, some type of real estate fee, and potentially a mortgage title policy if you’re using a mortgage. In this blog, we’ll dive deeper into what closing costs are and what you need to know about them.
Title Insurance and Title Fees
Title insurance is an important part of the home buying process, as it protects you from any legal or financial issues that may arise due to errors or omissions in the title search. In Michigan, the cost of title insurance is based on the purchase price of the property and can range from a few hundred dollars to several thousand dollars. The average cost of title insurance in Michigan is around $1,000 to $2,000, but it can vary depending on the location and value of the property.
In addition to title insurance, there are also title closing fees that you’ll need to consider. These fees are charged by the title company to cover the costs of the title search, title examination, and other closing-related services. In Michigan, the typical title closing fees range from $400 to $1,000, depending on the complexity of the transaction.
It’s important to note that while title insurance and title closing fees can add up, they are necessary expenses to ensure that you have clear and legal ownership of your property. To get a more accurate estimate of the title insurance and title closing fees for your specific property, it’s best to consult with a local title company or real estate attorney. They can provide you with a detailed breakdown of the costs and help you navigate the home buying process with confidence.
Real Estate Fees (Administration Fees)
When buying a home, it’s important to factor in real estate fees, including those paid to the buyer’s agent. In most cases, the commission for the buyer’s agent is paid by the seller and is typically a percentage of the sale price. However, there may be some additional fees that the buyer’s agent charges, such as administrative fees or transaction fees.
It’s worth noting that while the majority of the buyer’s agent commission is typically covered by the seller, there may be some additional fees that the buyer is responsible for. These fees should be disclosed upfront by the buyer’s agent and should be no more than $500 to close. By understanding the real estate fees involved in the home buying process, you can make a more informed decision and ensure that you’re not caught off guard by any unexpected costs.
Mortgage Title Policy
When purchasing a home with a mortgage in Kalamazoo, Michigan, you will most likely need to purchase a mortgage title policy. This policy protects the lender from any title issues that may arise, such as liens or other ownership disputes. The cost of a mortgage title policy varies depending on the value of the property, but it typically ranges from $500 to $1,000.
It’s important to note that while the mortgage title policy is required by the lender, it does not protect the buyer from any issues that may arise with the title. For this reason, it’s recommended that buyers also purchase their own owner’s title insurance policy. This policy protects the buyer from any title issues that may arise and typically costs an additional $500 to $1,000.
To obtain a mortgage title policy in Kalamazoo, you will need to work with a title company or real estate attorney. They will perform a title search and provide you with the necessary documentation to close the loan. By purchasing a mortgage title policy and owner’s title insurance policy, you can ensure that you have clear and legal ownership of your property and protect your investment for years to come.
Lender Fees
When taking out a mortgage to purchase a home in Kalamazoo, Michigan, there are a variety of lender fees that you may encounter. These fees can add up quickly, so it’s important to be aware of what they are and how much they will cost you. Here are some typical lender fees that you may encounter:
Application fee: This fee covers the cost of processing your loan application and is typically around $300.
Origination fee: This fee is charged by the lender to cover the cost of processing the loan and is typically around 1% of the total loan amount.
Discount points: These are optional fees that you can pay to lower your interest rate. Each point is equal to 1% of the total loan amount and can cost several thousand dollars.
Appraisal fee: This fee covers the cost of having a professional appraiser evaluate the property to determine its value. It typically costs around $400 to $600.
Credit report fee: This fee covers the cost of obtaining your credit report and is typically around $30 to $50.
Title search and title insurance fees: These fees cover the cost of conducting a title search to ensure that there are no liens or other issues with the property’s ownership. The cost can vary depending on the value of the property and the complexity of the transaction.
Underwriting fee: This fee covers the cost of evaluating your loan application and is typically around $500.
It’s important to note that not all lenders will charge all of these fees, and the amounts may vary depending on the lender and the specific loan product you choose. It’s important to shop around and compare offers from multiple lenders to find the best deal. By understanding the typical lender fees involved in a mortgage transaction, you can make a more informed decision and avoid any unexpected costs.
Pre-paid Interest
Prepaid interest is a fee that you’ll encounter when buying a house with a mortgage in Kalamazoo, Michigan. This fee covers the interest that accrues between the time you close on the loan and the time your first mortgage payment is due. Typically, you’ll have to pay two months of prepaid interest, and the amount will be based on your loan amount and interest rate.
For example, let’s say you’re buying a house with a mortgage of $200,000 and an interest rate of 4%. Your monthly mortgage payment would be around $955. During the first month, you’ll accrue interest of $667. This is calculated by taking the loan amount ($200,000) multiplied by the interest rate (4%) and dividing by 12 months ($200,000 x 4% / 12 = $667). During the second month, you’ll accrue interest of $654. Once you close on the loan, you’ll need to pay these two months of prepaid interest upfront, which would be a total of $1,321.
It’s important to keep in mind that prepaid interest is not a one-time fee. You’ll need to continue making your monthly mortgage payments, which will include both principal and interest. Your first mortgage payment will be due on the first day of the month following the two months of prepaid interest. In the example above, if you close on the loan on August 15th, your first mortgage payment would be due on November 1st, and it would include both principal and interest.
Pre-paid Taxes and Insurance
Prepaid taxes and insurance are two fees that you’ll encounter when closing on a loan for a home in Kalamazoo, Michigan. These fees are typically paid upfront and cover the cost of property taxes and homeowner’s insurance for the first year of homeownership.
In Kalamazoo, property taxes are typically paid twice a year, in July and December. If you’re closing on a loan in the middle of the year, you’ll need to pay for the remaining months of the year upfront. For example, if you’re closing on a loan in September, you’ll need to pay for three months of property taxes upfront.
Homeowner’s insurance is another fee that you’ll need to pay upfront. This insurance protects your home and personal belongings in the event of damage or theft. The cost of homeowner’s insurance can vary depending on the value of the property and the level of coverage you choose. If you’re taking out a mortgage, your lender will require you to have homeowner’s insurance before they will approve your loan. You’ll typically need to pay for one year of homeowner’s insurance upfront when closing on the loan.
Overall, prepaid taxes and insurance can add up quickly when buying a home with a mortgage in Kalamazoo. It’s important to be aware of these fees and include them in your budget when planning for homeownership. By estimating your closing costs upfront, you can avoid any unexpected surprises and enjoy the excitement of owning a home.