What it Costs to Close

Closing costs typically amount to 2-5 percent of the purchase price of the home, to be paid at the time the buyer closes on his or her mortgage. A recent survey reports that the average closing fee amounts to $3,700. While lenders are required by law to provide borrowers with good faith estimates of closing costs within three days of when they apply for a loan, many of the fees factored into this "estimate" can change by up to 10% and thus must not be interpreted as a firm calculation. Closing costs consider expenses such as attorney fees, a fee for running a buyer's credit report, an appraisal fee, a survey fee, title insurance and search fees, and an underwriting fee, among others. Estimate your closing costs and see how closing costs vary by state.

How to reduce closing costs: Although the buyer typically pays the closing fee, some homeowners negotiate this with the seller, who may agree to assume part or all of closing costs on behalf of the buyer. Borrows can also seek a no-closing cost mortgage. With this, a buyer pays no closing costs upfront but will likely be charged a higher interest rate, meaning the buyer is not saving that much money in the end.

At the end of the day, these fees may only be a fraction of the price you are paying for a home, but they still amount to thousands of dollars. Make sure that you plan for such expenses so that your home buying process goes as smoothly as possible!

What is Title Insurance?

Title insurance (a one-time fee that insures the policyholder forever) is a contact that protects your ownership of real estate by making good losses from defects in title as a result of liens and encumbrances. Whereas most forms of insurance (i.e. car insurance) cover people for future events, title insurance protects you from past events.  Multiple people can have different types of claims on a piece of property, such as mortgages and leasehold rights (ex: liens due to unpaid taxes). Those who have claims on the property own a portion of that property; however, the property can be sold without their consultation. Because the lien stays with the property until it is released or satisfied, the new owner may have no knowledge about the claims on the property he/she is purchasing. Title insurance aims to ensure you have a clear title and full rights of ownership. Still, some claims, such as easements, will continue to remain with the land.

Title insurance companies check pubic records for anything that may affect your ownership. They may uncover judgments against previous owners and unpaid taxes and mortgages. The company reports these defects so they can be corrected. Because the title company insures your property, it’s in the company’s best interest to clear all possible liens or encumbrances to the property before closing.

In addition to clearing risks prior to closing, title insurance companies seek to resolve “hidden risks”—claims which may arise after you have purchased your home, for example a forged will or deed. To protect you against these damages, title insurance 1) defends your title, in court if necessary, at no personal cost, and 2) bears the cost of settling the claim if it proves valid, thus perfecting your title.

Finally, title insurance helps you to sell your home. The seller must present evidence that he/she holds valid title to the property, which can be satisfied by providing a title insurance policy covering the interests of the seller. 

Click on the video below for a brief, visual explanation of title insurance.