How to estimate closing costs when buying a new home

The searching is over. The bank has been contacted. The offer has been accepted, and now the dream of owning your new home is coming to fruition. So, what are the typical closings fees that you can expect to pay as part of your upcoming settlement?

Let’s take a look at what some of the typical closing costs are that you can expect to pay before the keys to your new home are placed in your hands:

Lender Fees

Typical fees that you can expect to pay to your lender for originating your mortgage:

  • Loan origination fee. Fee charged by the lender to originate your mortgage, and is typically 1%-2% of the loan amount, depending on the lender you select and the loan program for which you qualify.

  • Application and underwriting fees. Fees charged by the lender to process your loan application and underwrite the loan. These fees are typically rolled into the total Loan origination fee.

  • Appraisal fee. Fee charged by the lender to have your pending new home appraised to ensure the value of the home is equal to or exceeds the purchase price of the property and the loan amount you are requesting.

  • Tax service fee. Fee charged by the lender to have an independent company ensure there are no delinquent taxes or outstanding tax liens against your property.

  • Flood certification fee. Fee charged by the lender to ensure your new home is not located in a flood zone, and therefore there is no requirement for flood insurance.

  • Credit report fee. Fee charged by the lender to ensure that you are credit worthy of being given a loan and that your financial liabilities do not exceed your financial assets.

  • Interim interest. Mortgage payments always pay for interest in arrears. Interim interest is therefore charged by the lender from the date of settlement until the end of the month. For example, if you close on August 15th, you will pay interim interest from August 15th through August 31st, and your first mortgage payment will be due on October 1st. Your October 1st mortgage payment will therefore pay for all the interest accrued in September.

  • Escrows. Whether your lender requires it or you choose to have an escrow account to pay your homeowner’s insurance and property taxes, you will be required to establish your account at the time of settlement. Depending on how close your settlement date is to the next due date for your property taxes, depends on the number of months that the lender will need to collect. However, the lender will need to collect at least 2 months for the buffer they keep in the account at all times.

Settlement/Title Company Fees

Fees that are typically paid to the title company to search the title of the property and issue an owner’s and lender’s title insurance policy:

  • Settlement fee. Fee charged by the title company to conduct your settlement. Under the new Real Estate Settlement Procedures Act (RESPA) guidelines, this fee now also includes the costs for any title search, courier fee, notary fees, etc.

  • Owner’s Title Insurance fee. Cost of owner’s title insurance to protect you, as an owner, against title claims that could arise against the property. You typically have the option of selecting either the standard policy or enhanced policy. Our title policy a comparison chart outlines the major differences between coverages. The cost is determined by the purchase price.

  • Lender’s Title Insurance fee. Cost of lender’s title insurance policy to protect the lender against title claims that could arise against the property. The cost is dependent upon the loan amount.

Government Fees

Fees that are paid to the state and local government of the jurisdiction in which the property is located to record your deed and mortgage and transfer the property:

  • Recording fees. Fees charged to record your deed and mortgage. Said fees vary depending on the jurisdiction in which the property is located. Recording fees are also charged to record any releases for any current/prior mortgages found against the property, to record any Powers of Attorney used by any party to the transaction at the time of settlement, etc.

  • Transfer/recordation taxes. Fees charged by the state/local government to transfer title to the property.

Miscellaneous Fees 

Fees that are paid to third parties for inspections, surveys, etc.:

  • Termite inspection. Fee paid to inspect the property for any termite or other bug damage.

  • Survey. Fee paid to have a location survey done of the property to ensure there are no boundary line issues.

  • Condo/HOA Dues. If the property is in a condominium association or homeowner’s association, dues are typically required to be paid for the upcoming month. For example, if you purchase the property in August, the dues for September will typically be required to be collected at the time of settlement.

  • Condo/HOA transfer fees. The condominium or homeowner’s association management company may charge a fee to transfer the property account from the seller to the new purchaser.


Charges that have been or will be paid by one party to the transaction that are reimbursed by the other party to the transaction.

  • Tax prorations. Property taxes are prorated between buyer and seller depending on when the last tax bill was paid and when the next bill is due. Tax prorations are dependent on the jurisdiction in which the property is located, as each jurisdiction has different tax due dates and tax periods.

  • Condo/HOA dues. Any condominium or homeowner’s association dues are prorated between buyer and seller based on the last month paid. For example, if you are settling on August 15th, and the seller has already paid the August dues, the buyer would reimburse the seller for the dues already paid from August 15th through the 31st for the time the buyer will own the property.

All of these fees can be overwhelming; however, all of these closing costs will be disclosed to you by your lender in your Good Faith Estimate (GFE).

In addition, if you want to get ahead of the game before you even submit your first offer, you can always calculate your own total closing costs by using Federal Title's brand new mobile app CloseIt! 

The app allows you to input different loan products, property locations, purchase prices and much more to produce a detailed picture of cash to close and what your proposed monthly mortgage payments would be. And best of all, the app is free!

The bait 'n' switch continued...

Part 2 of 2

In Part 1, we looked at a scenario where a purchaser (Offer B) was attempting to switch from an “all cash” purchase to using lender financing under the GCAAR Regional Sales Contract, after the contract had been ratified. We concluded that such an act by a purchaser would be a breach of the contract.

Here we will look at how courts might view the matter and what remedies a seller faced with such a situation might have.

The key question is whether such a breach would be considered “material.” This is because if a purchaser’s breach is material, this will excuse further performance by the seller, which means that the seller can get out of the contract. 3511 13th St. Tenants’ Ass’n v. 3511 13th St., N.W. Residences, LLC, 922 A.2d 439, 435 (D.C. App. 2007) (citing cases).

The question of whether a particular breach is material has been called a “classic issue of fact” and involves an inquiry into issues such as whether the breach worked to defeat the bargained-for objective of the parties. Id. These issues are of the type that courts normally rely on juries to decide. Id.
There are no published cases in the District of Columbia (or Maryland) that deal with a switch from all cash to financing situation.

The case cited above, 3511 13th Street Tenants’ Association, involved the failure of the purchaser to tender an earnest money payment. In that case, the court refused to express an opinion on materiality of the breach, because that issue was one for the jury.

In our hypothetical, the fact that the offer was all cash was one of the key factors in causing the seller to accept the offer. While the purchaser might still be able to get to closing with lender financing, there is a good argument that the bargained-for objective of the parties has been defeated: namely, the seller’s objective of not having a transaction with the potential delay and uncertainty that comes with financing. In fact, the seller was willing to leave $5,000 on the table for that peace of mind. These factors weigh in favor of a finding that the breach was material.

This means that a seller who is on the receiving end of a bait and switch move by a purchaser should consider notifying the purchaser that such an act would be a material breach of the contract, and that if the purchaser proceeds with the financing, the seller will declare the contract to be rescinded. The seller could demand that the purchaser immediately provide a written assurance that the purchase would not be financed. If the purchaser did not comply with this demand, the seller could sell the property to someone else – possibly Offer A, if they are still around. A purchaser who wanted to stop such a sale would need to file an action in D.C. Superior Court for an injunction and specific performance. In the court case, the key issue would be the materiality of the breach.

Normally, in cases of rescission, the parties are returned to where they were before entering into the contract. See, e.g., Wright-Dean v. Garland, 779 A.2d 911, 915 (D.C. App. 2001) (case involving action for rescission). Accordingly, the purchaser may have a good argument that they should get their deposit back.

The seller’s alternative to rescission would be to go to closing and then sue the purchaser for breach of the contract. Id. Here, one could argue that the damages from the breach are $5,000, as that was the difference between Offer A and Offer B, and if it hadn’t been for the “all cash” term contained in Offer B, the seller would have accepted Offer A instead of Offer B. In the District of Columbia, claims for $5,000 or less may be brought in the Small Claims and Conciliation Branch of the Civil Division, where the process is more informal and, many times, the parties are not represented by counsel.

If you are a purchaser thinking about making an “all cash” offer and then trying to obtain financing after your offer is accepted, you should consider the possible risks before taking this course of action.

New law will eliminate subordination agreement requirements for some Maryland residential refinances

A homeowner who wants to refinance his or her first mortgage when there are two mortgages on the property is typically required to obtain a subordination agreement for the existing second mortgage.

This is because without such an agreement, when the existing first mortgage is paid off, the existing second mortgage would move up to "first lien" position, which would mean that the refinance first mortgage would end up in "second lien" position, which would not be okay with the refinance lender.

A subordination agreement is an agreement from the existing second mortgage-holder that they will be in second place, behind the refinance first mortgage. 

There is a new law in Maryland that will go into effect on October 1, 2013 that will eliminate the need to obtain a subordination agreement for a second mortgage for certain residential refinances. If the requirements of the law are satisfied, upon recordation, a refinance first mortgage will automatically have the same priority as the existing first mortgage that it replaces.

The requirements are:

  1. The interest rate for the refinance first mortgage must be lower than the interest rate for the existing first mortgage;
  2. The principal amount secured by the refinance first mortgage must be no more than the unpaid outstanding principal balance of the existing first mortgage plus an amount to pay closing costs of up to $5,000;
  3. The principal amount secured by the existing second mortgage must be no more than $150,000; and
  4. The refinance first mortgage must contain in bold or capital letters specific language that is set forth in the law.

Virginia already has a similar law.

Another driver of increased closing costs - Marketing Service Agreements (MSAs)

Affiliated Business Arrangements (ABAs), once known as Controlled Business Arrangements (CBAs) are becoming a focus of the Consumer Financial Protection Bureau (CFPB).

Recent efforts by the CFPB, evidenced by enforcement actions and resulting settlements, are clear indications of the CFPB’s intent to better protect the consumer against sham ABAs. Many ABAs are nothing more than an arrangement by which title companies and mortgage lenders buy business from a referral source at the expense of the homebuyer. See here and here.

As harmful as ABAs are to the consumer, a little-known but similar arrangement between referral sources and vendors known as Marketing Service Agreements (or, MSAs), may be even more harmful. This article explains the difference between ABAs and MSAs in more detail.

Unlike an ABA, the MSA does not fall under any specific statutory authority and, as such, there is no requirement by the referring party to disclose its business relationship with a participating vendor to the consumer. Rather, a MSA is broadly covered under RESPA Section 8 that states: "No person shall receive and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding – oral or otherwise – that business incident to or part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person." Therefore, fees paid through an MSA must be for actual marketing services performed by the referral source (i.e., real estate brokerage) on behalf of the mortgage or title company as vendor. In other words, the marketing services being performed by the real estate brokerage must be commensurate with the fixed monthly or annual fee paid by the mortgage or title company.

Over the course of the last year, the folks here at Federal Title & Escrow Company have been taking inventory of its competitors who participate in MSAs and their underlying fee structures. What we have learned reveals the harm to consumers. In one case, we learned that a competing title company is paying approximately $5,000 per month to a local real estate brokerage for “marketing services.” Yet, the only so-called "marketing services" being provided are "in-office access to the brokerage's sales associates to the exclusion of other competing title companies," "encouraging sales associates to write in to the sales contract the name of the participating title company," and "allowing the participating title company to set up a kiosk of brochures within the real estate brokerage office locations."

Clearly, for $5,000 per month ($60,000 per year), a title company could hire a marketing firm to provide a whole lot more in the way of marketing its services. This is just one of many instances we have discovered in which the fee being paid is clearly excessive in relation to the marketing services being performed. The truth is that the title company is buying business from a referral source – plain and simple.

So is it really the title company paying the MSA fee to the real estate brokerage? No, it’s the consumer paying the fee since the title company is simply passing on the cost to the homebuyer. Since the real estate brokerage has a vested interest in making sure the transaction is referred to the participating title company, they have little incentive in making the homebuyer aware of his right to shop and select his own title company. As industry insiders, we know for a fact that if a homebuyer shops and selects their own title company, they will pay far less than what they will pay by using the MSA-participating title company.

The homebuyer, as consumer, is also under-served by the inherent conflict of interest created by an MSA. The MSA-participating real estate brokerage is less likely to hold its partnering title company accountable for actions of malfeasance. In other words, they are more likely to “cover” for the title company since the title company is paying a handsome monthly fee to the broker. In the alternative, we are aware of several cases in which a partnering title company, without the knowledge of the homebuyer, has insured over title defects (i.e., unreleased mortgages, etc.) so as to timely complete a closing. Such a maneuver ensures the payment of the real estate brokerage commissions without delay and further solidifies the relationship between the MSA partners.

MSAs are little more than the act of buying business from referral sources – the “marketing service” being performed is only part of the ruse. At the end of the day, the MSA causes the consumer to pay more and corrupts the integrity of client advocacy. At Federal Title, we advocate for all real estate professionals to a transaction to act independently for the benefit of the consumer and not at the expense of the consumer. We don’t buy business – we earn it.

The bait 'n' switch: From an all-cash offer to not

Part 1 of 2

Consider the following scenario: It’s a bidding war, and the seller of a property is choosing between multiple offers. It comes down to the two highest offers:

Offer A: $505,000, FINANCING of 20% down and 80% loan, $5,000 earnest money deposit, closing date 30 days, no home inspection contingency.

Offer B: $500,000, ALL CASH, $5,000 earnest money deposit, closing date 30 days, no home inspection contingency.

The seller chooses Offer B. To the seller, the fact that Offer B was all cash was the deciding factor, because of all of the uncertainties and possible delays that can come along with a buyer getting financing these days. In fact, the all cash aspect was so important that the seller was willing to take $5,000 less. 

Then a few days go by, and the listing agent gets a call from the buyer’s agent asking to schedule an appraisal of the property, because the buyer is going to be financing the purchase with a loan, despite the fact that the offer had said all cash.

Can the buyer do that under the GCAAR contract?

Actually, no, not really.

In some of the deals we have heard about recently, the buyer’s explanation is that this is permitted under the GCAAR contract because the loan would be considered "Alternate Financing" under Paragraph 12.

That paragraph provides:

Paragraph 12, Alternate Financing "Purchaser may substitute alternative financing and/or an alternative lender for Specified Financing provided: (a) Purchaser is qualified for alternative financing; (b) there is no additional expense to Seller; (c) the Settlement Date is not delayed; and (d) if Purchaser fails to settle except due to any Default by Seller, then the provisions of the DEFAULT paragraph shall apply."

So, under Paragraph 12, in order for the above explanation to fly, the loan must be substituted for "Specified Financing." The problem is that "Specified Financing" means "the loan type(s) and amount(s), if any, specified in the PRICE AND FINANCING paragraph" (emphasis added). In an all cash offer, there are no loan types and amounts specified in that paragraph, so there is no Specified Financing, and a loan cannot be substituted as "alternate" financing.

The way the GCAAR Regional Sales contract is set up is further proof that cash is not considered financing under that contract. Paragraph 3, Price and Financing, has three blanks to fill in for “Financing” information in B:

  1. First Trust
  2. Second Trust
  3. Seller Held Trust

The cash information is put on a separate line called "Down Payment" in A. 

The GCAAR Conventional Financing Addendum also does not consider cash to be "financing," because it provides for a contingency wherein the buyer delivers to the seller a "firm written commitment(s) for financing from Lender" OR "Delivering evidence to Seller that Buyer has sufficient funds available to complete Settlement without obtaining financing" (emphasis added). In other words, there is lender financing, and then there is settling without lender financing, i.e., all cash.

All of this means that a buyer who wishes to get a loan to finance a purchase after making an all cash offer needs to get the seller to agree to amend the purchase and sale agreement to allow for that. A smart buyer would include in this proposed addendum that if the financing does not go through for some reason, then the buyer will close with cash.

Of course, the seller does not have to agree to such an amendment to the contract. What other rights does a seller have? In my above example, can the seller back out of the contract with Offer B, retain the earnest money deposit from Offer B, and enter into a contract with Offer A?

In the Default paragraph of the GCAAR Regional Contract (paragraph 23), the only buyer default that is specifically listed is the buyer’s failure to complete the settlement. This might lead a buyer to think that as long as he or she can meet the settlement date in the contract using the lender financing, that he or she is okay, but, in fact, that is not the case. The buyer is in default of a term of the agreement, which says that they are purchasing the property with cash.

The question is whether this default rises to such a level that it would allow the seller to rescind (i.e., back out of) the contract. Stay tuned for Part 2 where I look at this issue and what courts have said on the subject.

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