Moving into a new home is full of decision-making and closing costs, and we understand you probably have lots of questions, especially when it comes to financing. We’re here to help! When you buy with Taylor Morrison, you have easy access to knowledgeable, friendly, and helpful experts to guide you along the financing journey.
The word financing covers a lot more than the purchase price of your new home. In addition to your down payment, another expense to account for is your closing costs. To help you stay prepared, we’ve put together a simple rundown of the most common closing costs and an explanation of these fees.
Ready to get the facts? Read on!
What are Closing Costs?
Closing costs are the fees and charges due at the end of a real estate transaction when the property title is passed to the buyer. While some of these fees are covered by the seller, most are the buyer’s responsibility.
The allocation of which party is responsible for such costs is itemized in the Purchase Agreement. It is set forth on the Closing Disclosure for financed buyers or the Settlement Statement for cash buyers.
Typically, these costs are divided into three categories: property-related, loan-related and title related.
How much you’ll pay in closing costs depends on many factors including the location of the home you buy, local tax laws, taxing districts, the home itself, the Closing Agent, and the type of loan you choose. As a result, closing costs vary, depending on your unique situation.
On average, buyers pay between 2% and 5% in closing costs when purchasing a new home in the United States. (Important note: Take advantage of our Summer Funds Sales Event and get up to 4% of the purchase price back to you to use towards financing, including closing costs, pre-paids, and discount points!) To find out how our Summer Funds Sales Event can put money back into your pocket, click here!
Common Closing Costs
We want to help you prepare! Understanding which fees are included in the closing costs can help you budget for the expense, making your homebuying experience as seamless and worry-free as possible.
When you complete a formal loan application, your lender will supply a Loan Estimate that includes the closing costs on your home. However, this is just an estimate, as fees can change in the process. To prevent you from being surprised when there is a change, the lender will provide a revised Loan Estimate.
While this list doesn’t include every possible closing cost related to buying a new home, it does provide an extensive overview of the basics.
The processing fee covers the service provided by the lender to handle all documentation related to your mortgage application.
The underwriting fee is what you pay to your lender to approve your loan. This fee covers the cost of reviewing and validating your loan qualification.
As part of the loan application process, your lender will order a tri-merge credit report from all three major bureaus to check your credit history. Your credit score is key when determining the interest you’ll get on your loan.
Appraisal with Final Inspection
We’re sure you’ve heard the terms appraisal and final inspection, but you may wonder what the difference is and what they really mean. Here’s what you should know:
Your lender will verify that you are paying market value for your new home. A certified appraiser will analyze comparable sales in surrounding neighborhoods to ensure your future home meets qualification guidelines.
Your down payment requirement is determined by the purchase price or home value, whichever is less. You will be responsible for paying a third-party appraisal management company when the appraisal is ordered, before closing on your home.
If you’re purchasing a newly built home, your home is likely not 100% complete as of your Purchase Agreement date. Before your closing, it is necessary to certify your home is 100% complete by asking for a secondary report called “final inspection,” which confirms your home is move-in ready.
A surveying company is often hired to double-check property lines and confirm the location of shared walls or fences. A survey will confirm that the property’s physical boundaries match the deed.
Attorney Review Fee
Some states require an attorney to review the loan documents on behalf of the buyer or lender before closing.
Settlement Fee or Closing Fee
A settlement fee pays to conduct and handle the closing, including documents and dispersing funds.
The courier fee facilitates the shipping or physical transportation of signed paper documents between the buyer, the seller, the lender, escrow and any other involved party that requires access to the documents.
Title-Doc Prep or Title Search Exam Fee
The document preparation fee is paid to a title company and covers everything that goes into researching a title to ensure that it is clear of liens and title defects. (Note: liens are charges attached to a property title due to unpaid debts).
Owners and Lenders Title Insurance
Title insurance protects the policy owner against undiscovered issues with a property’s title—one of the most common problems being unpaid property taxes. Further, it protects the lender against loss in the event of a title defect. The lender and buyer must purchase separate policies to be covered.
Title Endorsement Fee
A title endorsement fee adds coverage or removes exemptions from title insurance to match a specific property’s unique situation. It covers any necessary changes to the policy. Standard title insurance covers recorded liens not listed on the policy, errors in the deed, and fraudulent deeds but may not include specialized coverage required by the lender.
Recording fees pay to record the new deed and mortgage documents legally.
Government Transfer Fees
The state or county government may assess a transfer fee to complete a real estate transaction depending on the property’s location. Typically, this fee is calculated based on a percentage, meaning the cost goes up depending on the price of the home.
These items are exactly what the name implies, i.e., a pre-paid payment made in advance of the monies due at closing on your loan. The most common pre-paid items are your homeowner’s insurance and property taxes collected and placed into an escrow account. This is to build reserves and have funds to pay those bills when due. Another pre-paid item is the mortgage interest that accrues between your closing date and the last day of the month.
What do points have to do with financing? Let’s dive into zero-point loans, buydowns, and origination credits.
For most loans, the buyer will have the option to pay points at the time of closing to buy down their interest rate. Discount points are a “discount” on the current market interest rate. A point is equal to one percent of your mortgage loan amount. Paying discount points makes financial sense for buyers who plan to hold their mortgage for an extended time. Doing so will result in a smaller monthly payment.
Some buyers may elect to receive a rebate for their chosen interest rate. With this option, you may select an above-market interest rate in exchange for an origination credit.
This credit from the lender cannot be used to refund your down payment. However, it can cover closing costs. In this scenario, your monthly payment is higher, but this can still be a smart choice for buyers who do not have the money to pay the closing costs out of pocket.
Be sure to double-check your Closing Disclosure to compare your final loan with the last Loan Estimate provided. Your lender must deliver your Closing Disclosure three days before your closing.
Make Moves with Taylor Morrison
We hope this helps you understand the closing costs when financing a new home! As always, we’re here to provide you with a transparent and helpful homebuying experience. As America’s Most Trusted Home Builder for seven years running, you can be confident in our ability to help you make your best move.
To connect with Taylor Morrison Home Funding or to get more financing information, visit us here!
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