August 21, 2014
A recent report from http://www.BankRate.com shows Texas to have the highest closing costs of any State in the Union so for Buyers this is a very important topic. Part II of Buyer Costs When Purchasing A Home will solely address 3rd Party Fees, those fees the buyer will pay to a 3rd party (not the Mortgage Company or the Seller). Buying a home is a significant undertaking and demystifying some of the associated costs and how to save on them is very helpful.
My previous blog, Taxes & Insurance at Closing, discussed opportunities to save costs on Taxes and Insurance by paying those outside of escrow. In Buyer Costs When Purchasing A Home I discussed other upfront costs a Buyer in Texas can expect such as the Appraisal fee, Home Inspection costs and Option Fee. Although these are 3rd Party Fees and could be addressed here, it seemed appropriate to identify those as costs that Buyers would be paying out-of-pocket prior to Closing or Settlement. All these costs will appear on the HUD-1 at Closing.
The following chart shows those costs already addressed in my previous blogs and those that will be addressed in this one:
|Buyers’ Out-of-Pocket Expenses for Closing|
|Earnest Money (1%)||$2,200|
|Home Inspection Fee ($275-$750)||$350|
|Local Transfer Tax||$-|
|Down Payment (20%)||$44,000|
The HUD-1, a government form used by Title companies to provide you with a statement of actual settlement costs. Both parties to the contract (Buyer and Seller) typically receive a HUD-1 at closing showing the costs that Buyer is paying to all parties and costs that Seller is paying as well as any funds that might be received from the sale. See my blog on HUD-1 for a deeper discussion of this document.
Third Party Fees
Third Party Fees consist of those charges collected at Closing but not paid to the Mortgage Company and primarily consist of:
• Title Services
• Title Insurance
• Residential Service Contract (Home Warranty)
• Delivery Fees
• Flood Certification Fee
• And, quite possibly Local Transfer Tax depending on where you live and if your locality charges such. The Texas counties of Collin and Denton do not currently charge a Local Transfer Tax.
Although this topic is discussed in my previous blog, Buyer Costs When Purchasing A Home, it’s a good idea to review it here as well. Your Mortgage Company will typically order an Appraisal to assure the property you are purchasing is worth the amount you are paying. Almost all lenders will require the Buyer to pre-pay the Appraiser at the time of service (appraisal being performed). Some lenders will reimburse this cost but not all so be sure you know your lender’s policy on this. The Appraisal Fee can cost $150 – $1,500 depending on the property, type of appraisal being performed and property value.
Surveys are another 3rd Party cost that may be paid prior to closing depending on your scenario. In Texas a Seller who has their original survey and has made no changes to their property line (such as a new fence) can oftentimes provide that to the Buyer and a survey might not be required.
However, for those times when a survey is necessary this is another out-of-pocket expense the Buyer will experience prior to Closing and will be paid at time of service or performance. So, when the Surveyor performs that task, they will be paid for their services at the time of survey.
The Title Company will review the Survey for any changes to property lines and notify appropriate parties of any discrepancies.
Title Services & Fees
Title companies today are performing a significant service for Buyers and may charge for those services. A cost-conscious Buyer may shop for this service but this is an area that’s better to have the best, not necessarily the cheapest, provider. Having all your documents prepared correctly the first time is far less expensive than having them redone or improperly completed and errors not found until it’s time to sell.
A service provided by most title companies is generation and preparation of the Closing documents such as the HUD-1, reviewing all contractual documents with both the Buyers and Sellers, and providing Title Insurance.
Title companies also sell Title Insurance and in Texas the cost of Title Policy Insurance is established by Texas Department of Insurance (TDI) each year. The policy amount is based on property values and can be found at Texas Department of Insurance here. http://www.tdi.texas.gov/title/index.html
The purpose of this policy is to insure the Seller has conveyed clear title to the Buyer. The following is a definition provided by TDI governing title insurance: “Title insurance protects you from claims of ownership, outstanding debts of previous owners, and other title problems that you didn’t know about before you bought the property. It doesn’t insure against fire, flood, theft, or any other type of property damage or loss”. In Texas this cost is a set amount but the party responsible for paying Title Insurance is negotiable between Buyer and Seller.
Home Warranty Service Contract
Having a Home Warranty Service Contract or Residential Service Contract is often very helpful to new homeowners. This product provides access to service providers such as plumbers or air conditioning contractors at very reasonable prices in the event of misfortune such as the water heater breaking or the air conditioner requiring service.
Residential Service Contractors are governed by the State of Texas and each one is reputable. However, it is not required coverage in this State but rather is optional. It is also optional (or negotiable) for the Seller or Buyer to pay the cost of this coverage.
Texas Premier Title Company has a great document comparing the service companies’ costs here.
Notary fees are costs associated with validating you are who you say you are. The Notary confirms the person signing documents have proper identification and are the correct signatory. This fee is not always charged but is typically between $35 and $50 when it is a separate charge.
Recording fees are those charged by the local governments to record the deeds and liens in public records. These fees are established by the local governments and most often are a pass-thru to the Buyer.
Delivery fees are costs associated with transporting documents from one office to another. During many transactions it is necessary to use a local courier company to ‘hand carry’ checks or other documents in an expedited manner.
Flood Certification Fee
FEMA (Federal Emergency Management Agency) is responsible for identifying and certifying flood zones and whether a property in located in that zone. If you are financing the purchase of your home then most likely you’ll use the property as collateral for that loan so your lender will require a Flood Certification Fee to assure that the property is or is not located in a flood zone as identified by FEMA.
Local Transfer Tax
As noted in the list above, this tax is not required by every county. Fairfax County in Virginia charges this Tax when you sell a property or if you’ve just re-financed. The two counties that I’m most familiar with in Texas, Collin and Denton Counties, do not charge this Transfer Tax.
See my other blog Taxes and Insurance At Closing for information regarding payment of taxes and insurance when closing on your new home.
Brenda Patton is a Texas-Licensed real estate agent with Ebby Halliday, REALTORS located at 1415 Legacy Dr, Ste 100, Frisco, TX 75034. Her office number is 972-335-6564 and cell/text is 469-408-3148. You may also reach Brenda via email at email@example.com.