Unfortunately a lot of people assume down payment and closing cots are the same thing. They are not. This is one of the top regrets buyers are having right now – they simply didn’t know all the true costs of purchasing before starting the process. There is nothing worse than getting a massive bill at the end, just imagine the shock of that! I never want you to experience that.
One of the largest unknowns buyers don’t understand when purchasing is the true costs of closing on a property. The down payment is equity you immediately have in the house – that’s the percentage of the house you own like 10% if you put 10% down – there are also closing costs to purchase.
They usually range from 2-4% of the overall purchase.
These closing costs are broken down into two categories – prepaid and fixed. Prepaid includes insurance, taxes, and interest – these are all paid into the future, usually a couple months. These are expenses you will always have when owning so look at this as savings in the short term future because that’s what they are. Fixed includes the traditional standard closing costs like title insurance, escrow fees, and loan origination.
On a cash purchase these are very straightforward and are usually around $1500.
However on a financed purchase they are more detailed. They vary depending on the property’s purchase price, the specific terms of the purchase offer, and the escrow company involved. Here’s a detailed breakdown of them –
Loan Origination: This fee is charged by the lender for processing the mortgage application. It typically ranges from 0.5% to 1% of the loan amount. Your lender will confirm the exact amount.
Appraisal: The lender requires an appraisal to determine the fair market value of the property. The appraisal fee can range anywhere from $300 to $1500 depending on the property. This guarantees you won’t overpay – another major regret of homebuyers.
Escrow: In Las Vegas, a neutral third party (escrow company) handles the closing process and ensures all documents and funds are properly exchanged. Escrow fees are typically split between the buyer and seller and can usually range from $500-2000 each.
Title Insurance: This is a type of insurance that provides protection against financial loss due to defects in the title or ownership of a property. It’s important because it identifies any potential issues on title such as outstanding liens, undisclosed heirs, conflicting claims, or errors in public records. Once any potential problems are identified, the title company will work to resolve them before issuing the insurance policy. The cost of title insurance can vary but is usually based on the property’s purchase price. We will confirm this on a property by property basis with title.
Home Inspection: A professional home inspection is essential to assess the property’s condition thoroughly. Home inspections can range from $400 to $5000 depending on the size of the property and other amenities like a pool. Most are about $600 though.
Recording: These fees are charged by the county to record the new deed and mortgage documents. Costs can vary but are generally a few hundred dollars.
Title Search and Examination: This fee covers the cost of researching public records to ensure there are no title issues. It can range from $200 to $500.
Prepaid Property Taxes and Insurance: At closing, you may need to prepay property taxes and insurance for the first few months. The amount varies based on the property’s location and insurance policy. The general rule fir taxes is 1% of the overall sales price. So if it’s $1,000,000, it would be about $10,000.
HOA Fees and Transfer: If the property is part of a homeowners’ association (HOA), you might need to pay transfer fees to join the HOA, as well as prorated dues for the current period.
Home Warranty: Buyers often have the option to purchase a home warranty to cover major systems and appliances. Costs vary depending on the coverage selected but usually average about $800 for the year. I highly recommend this, it is some of the best money you will spend!
Here are a couple examples of prepaid and fixed closing costs in some real life examples of properties I’ve sold…
#1. $450,000 house with a 3.5% down FHA loan – The prepaid closing costs were $5,400 and the fixed closing costs were $7,200. Total it was $12,600, that’s 2.8% of the sales price.
#2. $1,000,000 house with a 20% down Conventional loan – The prepaid closing costs were $8,900 and the fixed closing costs were $11,800. Total it was $20,700, that’s 2% of the sales price.
#3. $2,500,000 house with a 20% down Conventional loan – The prepaid closing costs were $22,200 and the fixed closing costs were $26,800. Total it was $49,000, that’s 2% of the sales price.
Now I want to review 2 actual closings to give you a general breakdown of the costs…
The first is a cash sale where I represented the buyer.
For prorations and adjustments they paid county taxes, HOA, sewer, and trash at closing – the cost was $359 total.
For government recording and transfer charges they paid the deed recording fees – the cost was $47.
For escrow charges they split the settlement and closing fee 50/50 with the seller which is customary in Southern Nevada – the cost was $800.
Lastly for miscellaneous charges they paid a pre paid assessment to the HOA – the cost was $144.
Total their closing costs on this cash purchase were $1,350. Like I said very minimal and super straightforward on a cash purchase.
Next let’s review a financed purchase where I represented the buyer. This was a very detailed one so I think it’ll be good example.
For new loan charges they paid a loan origination fee, document prep fee, payment processing fee, wire transfer fee, appraisal fee, credit report, flood certification, property tax status report, homeowners insurance premium for 12 months, prepaid interest for 2 weeks, 2nd quarter property taxes, homeowner’s insurance for 2 months, and property taxes for 1 month – the total cost was $22,972.
For escrow charges they paid for the closing protection letter, e-record fee, title inspection, and split the escrow fees 50/50 with the seller which is customary in Southern Nevada – the cost was $1,129.
For title charges they paid for the ALTA extended loan policy, a couple disclosures, and an ALTA extended owners policy – the cost was $2,203.
For recording fees they paid for the deed and mortgage to Clark County – the cost was $126.
For additional charges they paid for HOA community dues along with the trash and sewer – the cost was $475.
For prorations and adjustments they paid the county taxes for 2 months, sewer, trash, master HOA, and sub HOA – the cost was $2,221.
Total their closing costs on this financed purchase were $29,126. That’s 1.6% of the overall sales price.
Again these are all standard – none of these are new. They may surprise you just because people rarely talk about them. The total amount of closing costs usually add up to 2% to 4% of the property’s purchase price and your lender can give you a much more detailed breakdown. Knowing these costs before purchasing allows you to budget them out and more importantly not get any unwelcome surprises. Before closing all these costs will be reviewed and confirmed through an estimated settlement statement. You will not have any surprises.