When it comes to closing, the costs can be a huge question mark when you’re planning. Although you will get a breakdown of the fees before your closing appointment, we’ve asked our friends at Direct Mortgage Loans in Mount Pleasant to help explain what you can expect.
What are closing costs?
Closing costs include attorney fees, escrow setup, prepaids, lender fees, and a few miscellaneous fees.
Here’s the breakdown of Charleston homes’ closing costs:
- Attorney fees – This would include title work, lender title insurance, owner title insurance, settlement fees, recording fees, and sometimes deed stamps/transfer taxes.
- Escrow setup – Part of the borrower’s monthly payment includes 1/12 of the insurance premium and 1/12 of the tax payment. That amount is pulled out of the monthly payment and set aside into the escrow account (basically a savings account at the mortgage company) so that the mortgage company can pay the insurance and the tax bills when they come due. The escrow account must have a 2-month cushion to hold a balance in the account and to accommodate any increase in taxes or insurance premiums.
- Prepaids – The borrower pays for a year’s worth of insurance at closing so that the home is covered over the next 12 months while the borrower’s escrow account is collecting payment for next year. As mortgage payments are paid in arrears, the borrower will also pay for the interest that will be accrued from the day of closing to the end of the month because they will not have a first mortgage payment until the second month after closing – example: closed in April, first payment is in June.
- Lender fees – Lender fees will include origination fee (which we don’t charge), an underwriting fee, and any points the borrower decides to pay for a lower rate. Other lenders may have additional fees.
- Miscellaneous fees – This would include the appraisal fee (if not paid for prior to closing), the credit report, a condo questionnaire (if applicable), and flood certification. Other lenders may include additional fees depending on the type of loan and what services are required to close the loan.
Now for the taxes…
The borrower can certainly ask the seller for a copy of the tax bill. This is also public knowledge and can be pulled from the county website. HOWEVER, when calculating how much the buyer’s tax payment will be, it is incredibly important to remember that the seller’s tax amount is based on the sales price of when seller purchased the home. The buyer’s tax payment will be higher because their tax payment will be based on the sales price when the buyer purchases the home.
We recommend googling the home’s county tax estimator, entering the purchase price amount, the appropriate tax district, and the appropriate tax rate for the type of home the buyer will be purchasing (primary or secondary/investment). Primary residences are taxed at 4% while secondary and investment homes are taxes at 6%. And while this sounds like only a 2% difference, it actually nearly triples the tax payment from primary to secondary, so it’s important to get it right not only for budgeting purposes, but also so the escrows are set up correctly from the start with the lender. Each lender and attorney know these rules, so they will also take care of it during the loan process.
As far as insurances, the seller can certainly provide this for an estimate, but it is a good idea for the buyer to reach out to a local insurance broker to get a custom quote for them.
Some people have higher content coverage that the buyer would not need, which will inflate premium costs. The buyer can also get credit for security systems, green systems, etc. As far as flood insurance, there is a high likelihood that a buyer can assume a seller’s current flood policy, which often results in a cheaper premium than if they got their own policy because the buyer will be grandfathered into the seller’s policy costs. It’s a great option if it is available. It is also smart for the buyer to double check this with an insurance company because the FEMA flood maps have changed recently and there are several places that were in a flood zone that are no long in that flood zone, so additional coverage my be required OR there may not need to be flood insurance on the property anymore.
Got more questions about your Charleston home’s closing costs? Contact our team: (843) 607-6893