Buying a home is perhaps the biggest purchase many of us will make in our lifetimes. When you don't know the costs involved, it can be unsettling. Assuming you have already found a home, with your house-hunting search behind you and your earnest deposit cashed and in the Escrow account (which will be held and credited to your costs at closing), you can start preparing for the closing and move-in day of your new Omaha, NE home.
As a Buyer, expect property taxes, homeowners insurance, and lender’s costs to be part of your settlement-day tab. Douglas and Sarpy County are the only two counties in Nebraska that treat real estate taxes as current instead of having them run in arrears and this can be very confusing. Basically, those two counties run a year "behind" other counties. So, at the time a home is sold, the taxes are brought current and the buyers will reimburse the Sellers for taxes already paid for the remaining tax year period. A few days before your scheduled closing, a title company representative and/or your loan officer will email a copy of your closing documents. Read these documents carefully — they will include details on the closing costs that are due upon settlement.
What are closing costs?
Closing costs are lender and third-party fees paid at the closing of a real estate transaction, and they can be financed as part of the deal or be paid upfront. They generally range from 2% to 5% of the purchase price of a home. (For those who buy a $150,000 home, for example, that would amount to between $3,000 and $7,500 in closing costs.)
Closing costs will cover both recurring and nonrecurring fees that are a part of your transaction. Recurring costs are ongoing expenses that you will continue to pay as a homeowner (taxes, insurance, etc.), with a portion due upon closing; nonrecurring fees are one-time fees associated with borrowing money and the services that were required to purchase the property (home inspections, termite inspections, appraisals, etc.)
Recurring closing costs are placed in your escrow account, which you might view as a forced savings account for those upcoming home expenses you’ll be facing. They can vary, but the most common ones are property taxes (one to eight months’ worth, depending on when your home purchase coincided with the local tax billing cycle), homeowners insurance (the annual premium is typically due at closing, plus another two or three months’ worth of payments), and prepaid loan interest (for the number of days you’ll have the loan until its first payment is due). Also placed into escrow are costs for title insurance, which is considered a must because it protects you in case the seller doesn’t have full rights and warranties to the title of the property.
Nonrecurring closing costs are fees paid to your lender and other professionals involved in the transaction. They include: any home inspection fees; any discount points you’re paying upfront to lower your interest rate; an origination fee, which is charged by the lender to process your loan; a document-prep fee, which covers the cost of preparing your loan file for processing; an appraisal fee, which covers the cost of a professional estimating the market value of the home; and a survey fee (if required by your lender) for verifying the home’s property lines. Also expect as nonrecurring costs: an underwriting fee for the cost of evaluating and verifying your loan application; a credit report fee for pulling your credit scores; title search and recording fees; and a wire-transfer fee for wiring funds from the lender to your escrow account. Costs and fees vary by lender and loan types so it pays to shop around.
How to prepare for closing costs
If you are aware of some of these closing costs when you’re shopping for a lender, it will enable you to compare each lender's costs and maybe save you a few bucks. Be sure to ask about interest rates plus any discount points you might want to pay upfront to lower those rates. Make sure you avoid private mortgage insurance, if at all possible, by putting at least 20% down on the loan. Using a closing-cost calculator to determine what your costs might be will help you figure out your monthly mortgage payments, based on whether you’re financing the closing costs into your mortgage or whether you’ve decided to pay them upfront.
As always, if you have any questions, feel free to give us a call at 402-884-1000. We are always happy to assist!
Until Next Time...
Maximum Exposure Team