Closing Costs Explained

What Are Closing Costs?

Closing costs, fees paid in addition to the loan and down payment amount of a mortgage, often come as a surprise to first-time homebuyers. Especially if these home buyers are young adults. In a national study done by ClosingCorp, they revealed that the majority of millennials (ages 18-34) are unaware that closing costs exist. They also found that 34% of all potential homebuyers are "Not Very" or "Not At All" aware of closing costs.

Not understanding all of the costs in a real estate transaction and how they are all related can be an impediment for first-time homebuyers who want to get into the market. It is important to educate your clients, especially millennials so that they understand all financial aspects when purchasing a home.

Closing costs typically equal 2 to 5 percent of the total purchase price of a home. The fees can be paid by either the buyer or the seller dependent upon the purchase agreement. Below are some common closing costs to finance a home:

Lender Charges

• Origination, processing, and underwriting
• Mortgage discount points used to "buy down" a rate
• Prepaid interest (per diem interest due between the closing date and first mortgage payment)

Third-Party Service Provider Charges

• Real estate commissions
• Inspection fees
• Escrow fees
• Title company fees for title searches, title insurance, and endorsements
• Property appraisals
• Survey and elevation certificates
• Homeowners, hazard or flood insurance
• Credit reports (PRM does not charge for these!)
• Attorney fees if applicable
• HOA dues

Government/Municipal Charges

• Property taxes
• Recording charges
• Eligible city or county transfer taxes
• Stamped deeds and mortgage notes

Escrow Funds (amount collected varies with closing date and due dates)

• Property tax reserve accounts
• Homeowner's insurance reserve accounts

PRM strives to educate our clients and referral partners on all aspects of the home finance process. Contact PRM today to find out how we can help your client make their dream home a reality.