We have been receiving a lot of finance questions from our clients about purchasing and selling a home. We want to make sure our clients receive the most accurate information, so we teamed up with Karen Jackson from First Priority Mortgage to answer the most common real estate finance questions. Karen has been providing lending advice and assistance for over 20 years in PA, DE, and NJ. She is one of our in-house mortgage lenders at Keller Williams Brandywine Valley that we recommend to many of our clients.
Let’s jump right into this weeks topic: closing costs. What does the buyer typically pay for? What does the seller typically pay for?
Buyers:
Generally, in this area (Delaware county and Chester county, PA), buyer’s costs tend to run about 4-7% of the purchase price, depending on how high property taxes are and if there are other fees, like home owners association (HOA) dues. Here are some common expenses:
Items paid upfront (not at settlement):
Deposit Money:
A.K.A. Earnest Money. The amount of money that someone puts down, after they go under contract. It is also known as a Good Faith Deposit, which allows the buyers time to get their financing in order, while the sellers take their property off the market. Some buyers choose to put more money down as a deposit to let the sellers know that they are serious about the property.
The amount can vary based on the price of the property. For example, a house that is around $200,000, you might put down a $5,000 deposit. If a property is more expensive, you might put a larger deposit.
This money is held in an escrow account until settlement, and then is put towards your closing costs.
Inspections:
The cost changes depending on who the inspector is, how many inspections you want to complete, and how large the property is. You may have to hire multiple inspectors if you are completing several inspections.
It could be anywhere from $200 to over $1,000
Appraisal:
An appraisal is an estimate of the value of the property at the time of purchase. The bank wants to make sure that the house is worth the price you are paying, or at least enough to satisfy the mortgage requirements. In some cases, repairs are required.
Around $450, but the price can very depending on the size of the house, and the difficulty to find comparable properties
Items paid for at settlement:
Down Payment:
A percentage of the total purchasing price that you pay at settlement that is not being financed into your mortgage. Each loan program can require you to put down a different percentage of the purchasing price.
Some loans require 3.5% down, while others require more.
Credit Reports:
Around $25 - $50
Mortgage Fees:
Such as processing, underwriting, etc.
Usually around $1,000 - $1,500
Title Fees:
This includes title insurance, notary, and other miscellaneous fees for wiring money, receiving documents electronically, etc.
Transfer Tax:
Typically paid by both the buyer and seller
The amount depends on where you are buying. It is about 1% each in most local PA areas, but costs more in Philadelphia and in the state of Delaware. In Southern NJ, all transfer tax is usually paid by the seller.
Property Taxes:
One years worth (less in NJ)
Homeowners Insurance:
One years worth, plus a couple of months to be collected by the lender
Settlement Services Fee (to the real estate office):
Around $300-$500
Miscellaneous Fees
Sellers:
Seller’s closing costs typically range between 6-9% of the purchasing price, depending on how high property taxes are and if there are other miscellaneous fees. Here are some common expenses:
Items paid upfront (not at settlement):
Sellers do not usually have to pay for anything upfront.
The exception to this would be after the inspections have been completed, the sellers may have to pay for repairs (if both parties agree). Additionally, in order to get the Use and Occupancy (U&O) certificate, the township may require repairs. Everything else will be paid at settlement.
Items paid for at settlement:
Commissions:
To be split between the buyer’s and seller’s agent
Conveyancing:
The transfer of the title of property from the seller to the buyer
Transfer Tax:
A tax on the passing of title to the property from the seller to the buyer
Use & Occupancy Inspection & Certificate
This is a township required inspection/certificate that makes sure the building is in compliance with all building codes and other laws, and to make sure the property is livable.
Tax Certificates:
To insure that the taxes have been paid up to date
Title Document Preparation Fees:
This fee covers administrative and other costs for your loan.
Fees vary by lender, but are typically around $50-$100.
Home Warranty:
A buyer may request the sellers pay for a home warranty.
Costs can be anywhere from $350-$1,000
Miscellaneous Fees
Closing costs can change based on the cost of the property, and your loan requirements. For buyers, once you find a property that you want to put an offer in on, we will send you an estimate of closing costs. This will give you a more accurate idea of what your closing costs could be for that specific house. We want to make sure you can afford not only the house, but can get through settlement. For sellers, we will give you an estimate of closing costs once you put your house on the market, and every time you receive an offer.
If you are interested in a property and want to know what the closing costs could be, contact us so we can give you a more accurate idea of what your closing costs might be.
If you are thinking about starting the home buying process, we would love to help! Send us a message, or check out our FREE How To Purchase A Home Guide, and let us answer any questions you may have. Make sure you keep an eye our for our next real estate finance blog post which will be about how to fix your credit.
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If you missed our last finance post about choosing the correct loan program for you, you can check it out HERE.