HMW #132: 5 Surprise Fees at Real Estate ClosingsDec 13, 2023
Read Time: 7 minutes
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Did you know you need more than a down payment when buying a home? Sure, the down payment is always going to be the biggest component, but that goes strictly to the mortgage lender. There are also attorneys or title companiies, insurance companies, government agencies, HOA boards, and more that want to get paid too!
These fees can range from 1-5% of your purchase price and I (Alan) don't want these "extras" to rattle you at a closing table.
Note, however, you can negotiate the fees with the seller, just not with the vendor charging them, in the form of seller credits on your purchase and sale contract. So, if you work out that that seller is going to pay $5,000 in closing costs, that goes to the below amounts and fees that are due in a real estate transaction and where the money goes when a seller has agreed to help you out with some of the closing costs.
Agreed, and surprise fees are the worst! So, let's make sure you are covered. And don't let the following give you sticker shock because I love to negotiate for the seller to cover the majority of these costs when I can.
Surprise 1: Attorney fees
Attorneys need to get paid, of course. And you want to pay an attorney to make sure everything is done correctly. In states that don't require you to have an attorney represent you, you should realize that the attorney actually represents the mortgage lender. And it's sneaky that you have to pay the attorney for the broker to represent you, but it is what it is. This cost varies by transaction size and city but budget around $1,000-$3,500 for their services. Your real estate agent can give you a clearer estimate.
Note: Some states are title company states, meaning they may close the transaction for you instead of a lawyer. They should give you an estimate of their fees (see number 3 below). Ask if any of them can be negotiated.
Hey, I'm not the one being sneaky. Those attorneys and lenders are!
Surprise 2: Prepaid home insurance and property taxes
All mortgage lenders require you pay your property taxes and your home insurance as part of the conditions of their loan. Plan on these as well.
The surprise here is that lenders don't often trust buyers to do this, so they require you to pre-pay 3-9 months of both insurance payments and property tax fees at the closing table just to make sure you get off to a good start on making those payments.
You know you are going to pay it, but paying several months in advance may catch you off guard. So, just be prepared for this or your closing is going going to be a happy experience.
Me?! I'm being a good party host and communicating expectations. Don't blame the messenger!
Surprise 3: Title Insurance
Title insurance is different than home insurance. It's not protecting your property itself, it's protecting you being the owner of the land the property is on. This is a sometimes optional fee, but it's also recommended, so some long lost heir doesn't claim they actually own the property and you have to hand it over.
This is often an expensive gotcha as it's not discussed by agents, lenders, or closing attorneys until you are actually sitting at the closing table with pen in hand. So, are you going to be prepared for this?
I think you will be now.
Surprise 4: Government fees
The government wants money. No surprise there. However, you might not know you have to pay them at closing to just change the name of the property deed. They will show up on your closing docs as city/state recording fees, which is essentially an online data update.
You may also incur property transfer taxes. And a bonus is that if you are over a certain price point, some states even have mansion taxes on top everything else. Just another reason to be super prepared with some extra coin in your pocket when buying real estate.
That's not all you have to do, but, definitely a good start.
Surprise 5: HOA onboarding fees
HOA's want their hand in your pocket too. So, be on the lookout for onboarding fees, key fob purchases, swimming passes, and more. The seller should disclose these fees at time of going under contract and if not, you may have a case they should be responsible for paying them on your behalf. It's just better to know upfront what is mandatory of a buyer on transaction day when joining the community.
That's right! Just don't be caught off guard. And when it's all said and done, investing in real estate is still worth it, even with a few possible hiccups (or surprises) along the way.
- You will be sent a closing statement by law 3 days in advance of closing with fees spelled out.
- You are free to ask questions to a closing attorney at anytime to explain fees.
- Budget for 1-5% more than your purchase price for closing.
- Seller credits can offset all of these in many cases.