Closing Costs Disclosed
So what’s the deal with closing costs? Oh you haven’t heard of them? If you’re a first time buyer, unfortunately, that’s really not surprising. Many first time home buyers are unaware of closing costs, and are ill-prepared to afford them.
Closing costs are a number of different items that are paid by both sellers and buyers in a real estate transaction. Some of the costs are related to the title, recording, and escrow services, while others are specific to the financing aspect of the transaction. On top of that, there could be additional costs related to the county, municipality, or community where the home is located. The big ones to account for as a buyer are your loan origination fee and any points, which a buyer should be aware of when they first begin discussing loan options with their lender. The other big hitters are prepaids. These prepaid items are not fees for services like a lot of the other closing costs. These are your pro-rated taxes, home insurance premiums, and pre-paid mortgage interest. If you are putting less than 20% down, you will likely also have private mortgage insurance (PMI) to pay upfront. In addition to these, lenders will require a lenders title insurance policy. Here are a few other items that you will see in the closing costs section of a transaction.
Examples of location-specific closing costs include excise and transfer taxes. For example, Washington County has a .1% transfer tax on real property that gets split between the buyer and seller. In Washington State, there is an excise tax of 1.28% for the full sale price of property. In Washington, this tax is generally paid by the seller.
All of these items add up, and buyers should definitely be aware of them. Typically, around 3% of the sale price can be used as a general rule for estimating buyer’s closing costs in the Portland Metro Area.
I don’t bring this up to scare anyone off that is thinking about purchasing, even if they haven’t necessarily accounted for these closing costs. In fact, in many first-time buyer transactions, we have been able to negotiate these costs, or a portion of them, into the purchase. In those cases the seller actually pays for the buyers closing costs from their net profit. So if you haven’t already accounted for these costs, but you have your down payment and financing pre-approval ready, let’s get out there and find a home!