Hi there, I’m Marcie Billen, a real estate agent in Norman, Oklahom with Ruya Team Realty and Keller Williams Mulinix and today I want to go over what some of these closing costs are that you might find if you’re buying a house or selling a house.
I understand this isn’t the most exciting of topics however, you probably want to have some questions answered about why there are certain costs whenever you’re purchasing a house. I’m going to run through these. These are not for a specific house or a specific person; this is a fictional house that I have priced at $200,000 and I’m also doing an estimate only for an FHA loan. Why am I doing that? Well, FHA is a little bit more complicated than let’s say, a conventional loan. If you’re reading this and thinking “Oh, I’m getting a conventional loan, so it’s not the same,” don’t worry. A lot of these costs actually will be the same, it’s just I wanted to make sure I covered that FHA loan.
I’m also going to go over the seller’s costs directly after the buyer’s cost. I think it’s really important for sellers to know what the buyers are paying for in their closing costs, especially because a lot of times sellers will end up paying the buyer’s closing costs. I’m not covering the negotiations for sellers covering buyers closing costs, or even the other way around, which in some markets does happen. If you need more information on that, I would watch this video next – Seller Paid Closing Costs | An Explanation.
Buyer’s Costs on a $200,000 Home
FHA Loan Information
I’m going to run through items you would find on home estimate that outlines an overview of what these buyer’s costs are. When a realtor gives you an estimate like this, it is just that. It is an estimate! We are not your lender; we do not have those different costs that your individual lender may have. If you have questions about your specific loan, you need to talk to your lender.
Down Payment – 3.5% ($7,000)
Our fictional house is $200,000 with a down payment at 3.5%, which is your minimum down payment on an FHA. And that’s $7,000 on this house which, means you’ll be getting a loan for $193,000.
Mortgage Premium – $3,375.50
MIP, what is that? That is mortgage insurance premium. You have to have mortgage insurance on your loan if you’re putting down less than 20%, so that’s what this is and they’re rolling it into your loan.
Total Loan Amount – $196,377.50
Total loan of course, $196,377.50. That’s the $193,000 plus the $3,377.50 that we see with the loan, plus the MIP.
APR – 3.963%
Then next we have the APR. The APR actually reflects the mortgage interest rate, plus other charges. And if you’re like “Marcie, you’re not totally answering all these questions! Like what is this? What is this?” I totally understand, I’m trying to give you an overview of what’s going on with a specific loan, so that way you’re not walking into this blind. I wouldn’t want you, as my client, to go under a contract for a house and just have no understanding of what any of this stuff is. I think it’s really good to get an overview before you start putting offers in on a house.
Monthly Payment Information
Moving on to monthly payment info, which includes principal and interest, homeowners insurance, monthly property tax, mortgage insurance premium, and HOA (homeowners association). Remember, this is a fictional house, so this is based off of a percentage used in these calculations.
Property Tax – $186.67
And then monthly property tax. You have to pay property taxes on your house and they put those into your escrow account so that the city can take them out and everything can get paid in December. In Oklahoma, we pay our property taxes in arrears, meaning that let’s say, you know, if you’re buying a house in 2021, then the property taxes for 2021 are due in December of 2021 and you cannot give the city any money before that point.
Mortgage Insurance – $136.71
Next thing is this mortgage insurance. We have that here at $136. This mortgage insurance premium, this is going to be different for every loan. It depends on your credit score and it depends on the loan product itself. Like I said, this one’s for an FHA and this is an estimate.
Homeowners Association – $17.50
Next up we have an HOA. I put that this particular fictional property has a $210 HOA, bill per year. Typically, you pay this out like all at once, and not monthly. However, if you were to pay it monthly,
Prepaid Costs
Homeowner’s Insurance – $3,500
Our prepaid costs these are a few different things, right? The first thing we have is this 14 months of homeowners insurance. A full year premium paid on your house for your your homeowners insurance, plus a little cushion for the lender could be $3,500, right? They’re allowed to have two months of cushion in your months of insurance. And another thing a lot of people don’t understand; so let’s say you’re you know purchasing a house in October, right? You close on the house October 15th. Cool, great. Your first mortgage payment is not actually due until December. That means you have a little time to build up some insurance in your escrow account so that those bills can be paid. Even though your next bill isn’t coming up for a couple of months, you still have to have homeowners insurance.
Taxes – $746.67
The next thing we have here, is taxes! You have to have four months of taxes in your escrow account as well whenever you close on the house. This is always dependent on the time of the year, because like I said, we can’t give the government any money before December in Oklahoma since we pay in arrears. You won’t have as much time to make up for your December payment if you’re starting in October, but if you’re starting in February, you have a lot of time to get that payment in place through your escrow account and through your mortgage that you’re paying every single month, because your mortgage, insurance, and your taxes are all rolled into one bill.
Interest – $482.50
This 30 days of interest, what is this? Well, when you’re paying your mortgage, you’re paying interest, right? You’re actually paying interest for the previous month. You have to have 30 days of interest because like I said, if you’re closing in October, your first mortgage payment is not due until December. In December, you’re paying for your mortgage and your interest from November. That means that your October needs to be paid as well, depending on when you closed. That number is going to be different too because you’re paying the previous month’s interest.
Total Prepaid Cost – $4,729.37
All right so this next line is your total prepaid cost. Remember, this is an estimate, this is for a fictional house, and I think I have the closing date on here to be like November 12th, or something like that. And then your prepaid costs; you’re adding together your closing costs and fixed costs to get your total closing costs, plus your down payment in order to to get to your bring to close amount. That means the money that you need to bring to the closing table, in order to close on your house. There’s a lot of different ways that this can change. Say it with me, this is an *estimate.*
Fixed Costs
Title Fees
Title Policy – $833.70
The title fees can be a little bit different, company to company. The first line here, is the title policy. Your title policy covers your title and any sort of encroachments that might come onto the land. That’s something that you can put in a claim for. Let’s say your neighbor “accidentally” built a fence on your property. You would be able to put in a claim with your title insurance, and they would help you take care of that. This covers any need that you may have to cure your title or help your title become, what we call clear.
Closing Fee – $150.00
The closing fee. What is that? Well that’s actually how you’re paying for the time that the closer, the actual person, spends at the closing table with you in order to close your house.
Attorney’s Exam – $200.00
Next is this attorney’s exam. An attorney always has to look at title in order to compile a list of things that need to be done, in order to make it a clear title so that the property can change hands. And they have to have this also for title insurance.
Gap Coverage – $125.00
Gap coverage varies company to company and you may not even have this on yours, if you’re not using this title company, but it may be called something else, too.
Settlement Service Fee – $100.00
This settlement service fee; this is for making sure that things are you know, secure for you. Meaning like any secure documents that have to be sent over the systems that they use in order to do that, FedEx couriers, anything like that. The closing protection letter is actually something that your lender needs from the title company saying that your title is free and clear so that, the title can change hands and there’s nothing wrong with it.
Lender Fees
Pest Inspection – $100.00
What are we looking at here? We have a pest inspection of $100. We put the pest inspection on our cost estimates because most likely, you’re going to pay for someone to come out and make sure you don’t have any termites in the house.
Survey – $365.00
Also you’re going to have a survey. The survey is something that the title company pulls for you from the county so that you can see where easements are, where setback lines are, all that kind of stuff for your house.
Miscellaneous Lender Fees – $800
A large portion of the lender fees go toward appraisal costs. Appraisals are typically around $500. You’re going to have some other things in there too, like verifications, and also flood certs to make sure your house isn’t in a flood zone, or if it is, that you’re taking into account flood insurance.
Other Fees
Mortgage Tax, Recording Fees, E Recording Fee – $256.00
The first thing we have here, is mortgage tax. This is a tax; it goes to the county, and the way that they figure this out is: .01% of the purchase price, plus five dollars. So it’s always different on every single one. Recording fees – these can change a little bit as well, but not very much. These are for the county. You have a certain amount for the first page of documents that you need recorded to include the title and deed, plus each page after that is a certain amount as well. There’s a regular recording fee for paper and the e-recording fee for online stuff.
Seller’s Costs on a $200,000 Home
We’re going to move on to the seller’s costs. Sellers have a much shorter list of things that they have to pay for, so let’s take a look at what costs would be on a seller’s net sheet. We call the buyer sheet a “buyer cost sheet” because of course, buyers are spending money on the house, they incur a cost. And the “seller net sheet” is how much they’re going to net at the closing table.
Payoff Amount – $50,000
You see I have the closing date here for November 19th, we have a sales price of $200,000; same fictional house, and then we have closing costs totaling $13,201.08 and then a balance of $50,000. Now, I put this balance is in here because this fictional seller that I have, has a loan on the house and they owe $50,000. That means that they’re gonna net, at close, $134,723.25.
Prorated Taxes
Prorated taxes are based off a percentage. And this is figured by how many months out of the year the seller is in possession of the property, versus how many months out of the year the buyer will have possession.
Fixed Costs
There may be fixed closing costs; title fees. You’re going to have that closing fee. The closing fee is the table fee, meaning that the time that the closer spends with you at the table. You’re going to have abstracting. Now the buyer pays for title insurance, but you, as a seller, own your abstract.
Abstracting is a compilation of anything ever filed against the property or the owner. It’s a big book of papers, in Oklahoma, it’s a big book of papers. Other states aren’t quite like this; we’re one of the last abstracting states in the U.S. The settlement service fee is going to be the things that I kind of covered in the buyer costs, so maybe some FedEx needs or couriers, or maybe even sending secure documents over the internet.
Other Fees
Other fees that the seller has to pay for: You have doc stamps. Doc stamps are taxes and they are filed with the county. The way that they figure this out is .75% of the sales price and that goes to the county. That’s just the law, and it’s actually in the contracts. And the recording fees; we have two of them here: one for regular recording, and one for e-recording. This varies because of how many papers need to be recorded for different things with the county.
And of course, a big cost that you’re going to see on here, this is a realtor fee. So we have buyers broker fee and listing brokers fee. So each one of these is $6,000 – this is not a set price in Oklahoma at all. This is a percentage and this is the one that I used to do this seller net sheet. Then we have our total fixed cost of $13,201.08. And that’s where this number is for closing costs, and then you have your prorated taxes and that’s how we get to our seller net at close.
I know that was so much information and can get a little confusing. Please reach out to me with your questions! If you made it this far and want to learn more about the transaction process from contract to close, watch this video.
