Understanding Closing Costs


Understanding Closing Costs

When buying a new home in Colorado Springs and surrounding areas, closing costs can add a significant expense to the overall price. Closing costs average between 2% and 5% of the home’s purchase price. This can add thousands of dollars to your total, and is over and above any down payment you may put down on the home.

Closing costs are miscellaneous fees charged by those involved in the sale of the home. From the lender processing the loan and the title company handling the paperwork to the surveyor and home inspectors, there are many third-party organizations involved in the home purchase process. Understanding what these fees are and what they do will provide you with a better understanding of the home purchase and closing processes.

In most cases, the buyer pays the closing costs. There are instances where other parties may pay some or all of the closing costs. For example, the seller pays part of these costs for homes purchased with a Veterans Affairs (VA) home loan.

Shortly after a loan application is submitted the lender will provide a Good Faith Estimate (GFE) of the total costs involved in your home purchase. New laws state that the final costs must not exceed 105% of the GFE, giving you a reasonable estimate of what you will be responsible for paying at closing.

Here is a breakdown of different fees and costs that make up a home’s closing costs:

  • Loan origination fees: Charged by the lender for the evaluation and preparation of the loan.
  • Discount points: A way to pay down the interest rate, discount points are finance charges by the lender where a point equals 1% of the loan. This is a good way to save money over the long-term.
  • Application fees: This fee pays for the processing of your home loan and may include a credit report.
  • Documentation fees: Not charged by all lenders, this cost may include processing, underwriting, and document preparation.
  • Inspections: Both home and pest inspections may be performed to ensure the home is structurally sound and free of pests like termites.
  • Appraisal fees: A home appraisal determines the market value of the property and is used by the lender in processing a loan application.
  • Homeowner’s insurance: This protects the home, and you, against damage costs due to wind, hail, fire, vandalism, etc. It does not include flood insurance, which is separate, if applicable.
  • Private Mortgage Insurance (PMI): This is required if the down payment is less than 20%. This protects the bank if they have to repossess the home and can’t sell it for what is owed.
  • Attorney fees: If applicable, the buyer may have an attorney represent him or her during the home buying process.
  • Taxes: Buyers must contribute four to eight months of taxes at closing. This is held in escrow and paid out when due.
  • Daily rate of interest: This is the cost of interest from the day of closing through the end of the month for that month’s loan interest.
  • Document preparation: Paid to the title company for their work on the loan paperwork regarding the title.
  • Survey costs: A survey of the property to make sure the property is as stated, buildings meet legal codes, and no new buildings have been added since the last survey.
  • Title fees: Include title search and insurance. Ensures there are no claims against the title and the seller actually owns the property being sold.
  • Title insurance: This protects you and the lender from any mistakes made by the title company.
  • Recording fees: Charged by the title company to pay for the cost of recording the transfer of title at the county clerk’s office.

Understanding all the factors, steps, fees, and costs involved in the home buying process will make your home purchase easier and go smoothly. For any questions about closing costs or the closing process, please contact Jayden Homes at (719) 535-9030.

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