Understanding Closing Costs
Here are some of the most common closing costs:
Escrow Deposit
The money you put in an escrow account each month is used to pay property taxes and insurance related to your property.
- Some lenders may require you to escrow depending on the circumstances of your mortgage.
- If you have an escrow account, you typically need a 2-month deposit up front.
Survey Fee
The cost for surveying to confirm dimensions and area of the property.
- The survey includes the width and depth of the lot, as well as other details.
- In some states the seller must pay for the survey prior to the closing so that it is presented as part of the loan application.
Private Mortgage Insurance (PMI)
PMI protects the lender against default.
- It’s generally required when the down payment is less than 20%.
- It’s usually included as part of the monthly payment, but in some cases you can pay it upfront as a part of closing costs.
Title Insurance
Under owner’s coverage, the title to your home is insured if disputes or claims arise after closing.
Property Taxes
As a buyer, you only pay for the portion of the tax period that you own the home. So, if your new loan starts December 1st, you’ll typically only owe for only that month and the previous owner will pay 11 months’ worth of taxes at closing.
Pro Tip:
You could qualify for a Real Estate Tax Exemption, which helps reduce your tax bill by allowing you to shelter an eligible portion of your home’s assessed value from property taxes.
Exemption laws vary on a state-by-state basis. For example, some states automatically offer a homestead exemption. In other states, you may have to fill out an application
You could qualify for a Real Estate Tax Exemption, which helps reduce your tax bill by allowing you to shelter an eligible portion of your home’s assessed value from property taxes.
Exemption laws vary on a state-by-state basis. For example, some states automatically offer a homestead exemption. In other states, you may have to fill out an application
Note: If you are buying a new construction home, be aware that taxes may increase significantly in the next tax year because they likely were only assessed on the land value in the year the home was built.
!! Beware of Closing Scams !!
Scammers may pose as your real estate agent, settlement/title agent, or another trusted source to steal your closing funds. These simple tips can help protect you.
Scammers may pose as your real estate agent, settlement/title agent, or another trusted source to steal your closing funds. These simple tips can help protect you.
Breaking Down Your Mortgage Payment
It might seem like one lump sum, but your mortgage payment is made up of several key parts:
Principal
This is the amount you borrowed for your mortgage loan.
- A portion of each payment goes toward paying off your outstanding principal.
- In the early years of your loan, the principal portion is small, but it increases with each payment and helps you build equity.
Interest
This is the amount your lender charges for the money you borrowed. In the early years of your loan, the interest portion is larger, but it lessens with each payment.
Private Mortgage Insurance (PMI)
For conventional loans, unless you have 20% equity in your home, a small portion of your monthly payment goes toward paying for PMI, which protects your lender in case a borrower defaults. Once you’ve reached 20% equity in your home, PMI may be eliminated from your mortgage payment.
Escrow Account (If Applicable)
Reminder: An escrow account is where funds are held to pay property tax and insurance bills on your behalf. If your loan is escrowed, a part of your mortgage payment goes into your escrow account every month to make your property tax and insurance payments for you.
Property Taxes
A portion of your monthly payment will be placed in an escrow account for your lender to use to pay your property taxes on your behalf.
A portion of your monthly payment will be placed in an escrow account for your lender to use to pay your property taxes on your behalf.
Homeowners Insurance
A portion of your monthly payment will be placed in an escrow account for your lender to use to pay your homeowners insurance, which protects against storm damage, fire, theft, and accidents that may occur on your property.
