“How much money do I need to bring to closing” and “What are closing costs?” These are two of the most common questions we get from buyers as we go from accepted offer through closing. In an effort to make this as clear as possible we reached out to both an attorney and a mortgage broker to try to pull together estimates. BTW, closing costs are directly tied to your purchase price and you are going to have to bring quite a bit more money to closing than just that down payment – so, don’t forget to factor it into your budget!

First, a breakdown of closing costs (keep in mind that these are all estimates):

1. Credit Check: Sometimes you will pay for this upfront, other times it gets rolled into the closing costs. This is the least expensive item you need to worry about, clocking in at a whopping… Cost: $30-$40
2. Appraisal Fees: When you apply for a loan there are two things that the bank looks at: (1) your financial profile and borrowing capability AND (2) the strength of the asset you are purchasing. Once you have a home under contract banks send out a third-party appraiser to give their assessment of the value of the property to make sure that the bank is getting the Loan to Value ratio required by their institution. This is a cost that they pass along to you, the borrower. Cost: $425 – $715
3. Tax Service Fee: This is a fee paid to the bank to monitor and ensure timely payment of your property taxes. It is the bank’s asset until you pay it off, so they want to make sure that no one else has rights to it, including the government. Cost: $25
   Note: You may not have to pay this if you escrow taxes (see below)

4. Flood certification Fee: This fee is for the bank to ensure that the property you are buying is not in a flood zone. If it is, you may have an additional Flood Insurance cost. If so, make sure you call an insurance agent before purchase, as the cost of flood insurance can add up quickly! Cost: $25
5. Plot Plan: The bank will order a plot plan to be obtained before closing to show where any structures are located on the lot. This is NOT a survey, and is only used by the bank. If you want to build an addition, or fence, do not rely on this for accuracy. Cost: $175
6. Title Exam: This is an in-depth search of all the public records that impact the title of the property you are buying in order to ensure that the title has passed down correctly to each new owner and is clean and clear for you to purchase. Cost: $200
7. Municipal Lien Certificate with Recording: This is a document that outlines all the taxes, assessments, and water charges owed on a property. Cost: $145
8. Processing/Underwriting/Doc prep Fee: This fee is one of the most self explanatory and is determined by the bank. Some banks don’t charge a processing fee – so make sure to ask them! Cost: $500
9. (OPTIONAL) Points: A lender may offer you the ability to ‘buy down’ the interest rate they are giving you, which can ultimately lower your monthly payment. Essentially what you are doing here is paying some interest upfront. A single point will cost you 1% of your mortgage amount. Honestly, paying ‘points’ is typically only worth it if you plan to hold on to your home for a longer time period. Your loan officer can help you do the calculation of how many months you would have to hold on to your property to ‘break even’ on the cost of your points. NOTE: the interest rate deduction you get for buying points is not set, and varies from lender to lender.
10. Lender’s Title Insurance: This is a type of insurance that you have to buy to protect the lender’s interest in the property. No matter what you are purchasing, new or old, land, or a pre-existing home, there will be many transactions tied to that property. A few examples are titles, deeds, and liens from lenders or contractors, which all get written and recorded and, therefore, attached to the property. When you buy a property a title search is done prior to closing to make sure that the home has a ‘good, clear, record and marketable title.’ However, sometimes things get missed or mis-recorded, whether due to a mis-file, something yet to be filed, or, more commonly, a mortgage discharge that was not signed correctly. Lender’s title insurance protects the lender’s interest if anything like this is to happen upon resale or refinancing of the property. Cost: $2.65 per thousand borrowed.
11. (OPTIONAL) Owner’s Title Insurance: This protects you as the owner from the same things that Lender’s Title Insurance does. We always highly recommend this, because, well, Murphy’s Law. Now, get ready for some algebra…Cost: $4.00 per thousand plus $175, minus the cost of lender’s policy.
12. Homeowner’s Insurance: This is your typical insurance plan, and the costs will vary based on the coverage amount. In order to put a price tag on this, we advise calling an insurance broker.
13. Attorney’s Fees: It is so important to have a real estate attorney represent you in your transaction. Usually a buyer will hire the same lawyer to represent them in the drafting of the Purchase and Sale agreement and in drawing up all the paperwork for the bank to close. People tend to stick with the same person as attorneys will offer a significant Purchase and Sale discount if they represent the whole transaction. Cost: $750 – $1,250
14. Courier Fees: If anything needs to be overnighted to the seller’s attorney, to the registry of deeds, or otherwise, you, the buyer, are on the hook for it. Cost: $30 – $40
15. Recording Fees: Once your transaction is complete, the deed, mortgage, releases, homestead etc. all need to be recorded with the registry of deeds.. and, if you thought you were going to get out of paying those fees, think again! Cost: $360 – $375

Well, that covers closing cost. But wait, that is not all! There is more! Below are some additional costs that you should be prepared to pay. Some of the items listed below will be bank and property dependent, but you should have them on your radar.

1. Prepaid Interest: This will be included in the money you bring to closing and will cover the interest that you owe on your principal between signing the loan agreement and making your first monthly payment.
2. Prepaid Tax and Insurance Escrows: Depending on the lender, it may be that you have to pay into a monthly escrow account for taxes and insurance. If this is the case, the bank will use this money to pay tax and insurance bills directly on your behalf. This ensures that you do not fall behind on payments, and protects the bank’s collateral. If your lender escrows, they may require you to provide 3-6 months of tax and insurance money at close to start the escrow account.
3. Tax Adjustment: Depending on the tax cycle of the city or town in which you are buying and your closing date, the seller may have already pre-paid a certain amount of the property tax. This number will get pro-rated and you will be required to reimburse the seller at closing.
4. Condo Fee Proration: If there is a condo fee associated with the property you are buying the same principal applies. You will owe the seller a pro-rated amount of money for the condo fee that they have already paid for the month in which you are closing.
5. Oil or Propane Adjustment: If you are buying a home with a heating system or cook top that relies on oil or propane, chances are you will see this adjustment on the settlement statement. The seller has already purchased the fuel to heat the home and they are leaving it there for you to use. They will have the company with whom they have a contract come out and measure what is left in the tank and create a bill for the oil/gas remaining.

Phew, that was a lot, and a lot of money! But, I believe we covered most of the typical costs you will see associated with closing. However, as closing costs will vary, there is a chance we could have missed one or two less common charges.

IMPORTANT LAST WORDS: Like many things in life, some closing cost items can be negotiable. Yes, attorneys might reduce their fees, but even more beneficial (and more likely) banks will offer you a closing cost credit (woot, woot)! It is a competitive landscape in the mortgage market and when you shop rates, you should also be asking if they will offer you any closing cost credits.