When purchasing a home, a Lehigh Valley Home Buyer should take into account closing costs. Typically, these costs run about 5-6% of the home purchase. This is in addition to the down payment that may be required for the loan type.
For instance, an FHA mortgage requires that the home buyer put down at minimum 3.5%. Add in the closing costs and a Lehigh Valley Home Buyer will need 8.5% to 9.5% of the purchase price to buy the home. The closing costs can be built into the mortgage using sellers assist but for now lets take a look at what are the Closing Costs when purchasing a home.
Out of all the costs associated with closing on a home, there are 3 that are "big" items:
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Title Insurance - based on the purchase price
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1% Transfer tax - based on the purchase price
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Real Estate Taxes (municipal, county, school) - Tax Prorations (taxes seller prepaid) and Mortgage Tax Escrow (how future taxes get paid)
The Real Estate Taxes can be the most expensive. Lehigh Valley Closing Costs typically include a year to 13 months worth of taxes. Let's take a closer look.
Lehigh Valley Home Seller Tax Prorations - Taxes Home Buyer Owes the Seller
When you purchase a home, the seller should have pre-paid the taxes for the following year. The home buyer will owe the seller back for any taxes that will become their responsibility on Closing Day. The home buyer pays the seller back at prorated amount.
In this example, the Home Buyer will close on March 31st, so they must pay back the seller for taxes that the seller prepaid (3 months of school taxes and 9 months of Municipal and County taxes).
Lehigh Valley Home Buyer Mortgage Tax Escrow - Mortgage Company will collect money for Future Taxes
The Home Buyer will close on March 31st, so their first mortgage payment will be May 1st. Each mortgage payment will include 1/12 of the taxes for the year.
Therefore, when the school taxes come due at the end of June the mortgage company will only have 2 months of payment towards the taxes.
As a result, at the closing the mortgage company will collect money to put a starting balance in the escrow account. That way in June when the school taxes have to be paid the money will be there.
When you add together the Seller Paid Tax Prorations and the Buyer Mortgage Escrow, it is equivalent to approximately 12-13 months of the yearly taxes on the home.
Closing Cost Example
Here is an example of the closing costs for a home purchased at $150,000 with yearly taxes of $2,800.00.
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Purchase Price $150,000 |
Yearly Real Estate Taxes $2,800 |
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Title Search/Insurance |
$1,265.00 |
Enhanced Coverage - Based on purchase price |
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Closing Protection Letter |
$75.00 |
Required by lender |
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Title Endorsements |
$200.00 |
Required by lender - 4 @ ~ $50.00 each |
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Settlement Notary Fees |
$45.00 |
7-9 notaries @ $5.00 each |
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Transfer Tax |
$1,500.00 |
1% of purchase price |
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eDocs, flood cert, and Misc |
$200.00 |
Miscellaneous Fees |
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1 Year Hazard Insurance |
$600.00 |
Depends on deductible, coverage...etc |
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1 Year Taxes |
$2,800.00 |
Municipal + County + School (changes with each property) |
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Inspections |
$400.00 |
Can be $400 - $700 depending on required inspections |
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Appraisal |
$450.00 |
Varies with each lender |
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Mortgage Application Fee |
$400.00 |
Varies with each lender |
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Total Closing Costs |
$8,335.00 |
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The closing costs are in addition to whatever down payment is required based on the mortgage type. For instance, FHA requires 3.5% down. In the above example, the FHA down payment would be $5,250.00 bringing the total costs to purchase the home to $13,585.00.
Note: Sellers assist can be used in many situations to offset the amount of the closing costs money the buyer will need in order to purchase the home.
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