Closing Costs - Buyers
Closing costs are the fees and charges associated with buying a particular piece of real estate, which are in addition to the purchase price. Closing costs will vary from deal to deal depending on the purchase price and overall deal structure, however there are some common similarities that I have outlined below.
The largest portion of your closing costs will be the down payment on your mortgage. When buying primary residences, second homes and investment properties most people put down at least 20% to 25% in order to get the best interest rates and loan programs available. You can put down 10% and possibly less depending on a variety of credit factors, however you will likely incur mortgage insurance which carries additional costs. If you are buying a primary residence their are FHA loan programs with attractive interest rates and terms that require as little as 3.5% down.
Real Estate Transfer and Recordation Charges
Outside of the down payment the largest portion of the closing costs when buying real estate are typically the property transfer and recordation fees charged by the state and county. The state and county charge these fees on all transfers of real property throughout Maryland. The total combined amount of these transfer charges in Worcester County is 1.66% of the purchase price or $1.66 per $100 of purchase price. The total transfer charges break down as follows:
State Transfer Tax ... 0.50%
County Transfer Tax ... 0.50%
Recordation Tax ... 0.66%
As an example, a purchase of real estate in Ocean City with a purchase price of $500,000 will have $8,300 in property transfer charges associated with it. Per the MD Residential Contract of Sale these charges are then split equally between the buyer and seller, however like most everything else in a real estate deal these charges are a negotiable item.
Adjustments and Prorations
Any items that are paid in advance by the Seller such as property taxes, association fees or water bills will be prorated down to the day of settlement. Through the settlement of the property you will reimburse the Seller for these items that have already been paid and you will then be paid current through the same time frame. As an example, property taxes are paid for the year on July 1st in Worcester County. Lets assume that the property taxes are $6000 per year and you go to settlement on May 1st. At closing you would reimburse the Seller $1000 for two months (May and June) of property taxes and your property taxes would then be paid until July 1st. This process would be repeated and outlined on the settlement statement for any other applicable items that have been paid in advance by the Seller.
If you are getting a loan to purchase your real estate in Ocean City or the surrounding areas you will be responsible for the fees associated with financing the property. These lender fees will be for items such as origination fees, credit reports and appraisals. These fees will vary from lender to lender, however some common price ranges are listed below:
Origination Fee ... $600 to $800
Credit Reports ... $25 to $50
Flood Certification ... $10 to $20
Condo Verification ... $100 to $150
Tax Service ... $75 to $100
If you were to buy the interest rate down through points there would obviously be additional costs associated. Additionally, if you were to make less than a 20% down payment on the mortgage you may incur mortgage insurance at an additional cost. These costs certainly aren't set in stone and depending on your relationship with the lender some of them, if not all may get waived or reduced.
Anytime you are obtaining a mortgage for the purchase of real estate the lender will require that an appraisal be performed on the property in order to verify its value. This fee is typically charged to the Buyer at the time the appraisal is performed. Appraisals for real estate in Ocean City and the surrounding areas range from $300 to $500 depending on the size, type and location of the property.
You will be responsible for the costs of any inspections you choose to have performed on the property you are purchasing. These inspections could include the standard home inspection, termite, mold, environmental and a variety of other inspections depending on the type of property you are buying and its location. A standard home inspection will cost anywhere from $300 to $400 depending on the size and type of property. The prices of the specialized inspections will vary depending on a variety of factors. Once I have the particulars I always get prices for these specialized inspections for my clients before they are performed.
Title and Closing Company Fees
You will have the option of choosing the title company that will perform the closing of your real estate purchase. The title company will perform the title search to ensure it is unencumbered, prepare the deeds for transfer, work in conjunction with the lender on necessary documents and will conduct the actual closing. The title company will also be the one to offer you title insurance, which will be required with a mortgage and optional if you are paying cash. These fees will also vary depending on the purchase price and overall structure of the deal, however some general ranges are outlined below:
Closing Fee ... $100 to $200
Title Examination ... $400 to $500
Document Preparation ... $100 to $150
Title Insurance ... Check with Lender
If you are obtaining a loan to purchase your property the lender will likely require that escrow accounts be set up for the property insurance and real estate taxes. This is not set in stone and will vary from lender to lender depending on the structure of the mortgage. Lenders have formulas for determining the escrow account amounts depending where in the tax year you settle and other factors.
I typically estimate high and advise my clients to expect their closing costs to be approximately 3% to 4% of the purchase price, however as I mentioned previously this will be dictated by the overall terms of the deal, the type of property you are buying and the time of year that you settle. Before my clients move forward with an offer I get them an estimate of the closing costs for that particular property from the lender and title company so they know what and how much to expect. If needed it is possible to negotiate closing cost assistance from the Seller into the deal to help cover some of these costs. If you would like to discuss this in greater detail or have further questions feel free to contact me anytime at 443-614-9179 or by email below.