What Are Closing Costs in PA?
Closing costs in Pennsylvania can be significant, so it's important to know what you are in for! I try to break it down in the video below.
Also called the settlement, the closing is the process of passing ownership of property from seller to buyer. And it can be bewildering. As a buyer, you will sign what seems like endless piles of documents and will have to present a sizeable check for the down payment and various closing costs. It's the fees associated with the closing that many times remains a mystery to many buyers who may simply hand over thousands of dollars without really knowing what they are paying for.
As a responsible buyer, you should be familiar with these costs that are both mortgage-related and government imposed. Although many of the fees may vary by locality, here are some common fees.
Common Closing Costs in Pennsylvania:
This fee pays for the appraisal of the property. You may already have paid this fee at the beginning of your loan application process. This is typically around $500. You can sometimes pay $100 more to rush the appraisal. Appraisals in PA have been taking longer than normal since COVID due to the high number of transactions.
Credit Report Fee:
This fee covers the cost of the credit report requested by the lender. This too may already have been paid when you applied for your loan.
Loan Origination Fee:
This fee covers the lender's loan-processing costs. The fee is typically one percent of the total mortgage, though I often see around $1200.
You will pay this one-time charge if you have chosen to pay points to lower your interest rate. Each point you purchase equals one percent of the total loan.
Title Insurance Fees:
These fees generally include costs for the title search, title examination, title insurance, document preparation and other miscellaneous title fees. Check out the title insurance calculator below. In Pennsylvania, the prices for title insurance are fixed by the state.
Title Insurance Cost Calculator: https://www.oldrepublictitle.com/rate-calculator/pennsylvania
If you buy a home with a low down payment, a lender usually requires that you pay a fee for mortgage insurance. This fee protects the lender against loss due to foreclosure. Once a new owner has 20 percent equity in their home, however, he or she can normally apply to eliminate this insurance. PMI stands for Private Mortgage Insurance.
Prepaid Interest Fee:
This fee covers the interest payment from the date you purchase the home to the date of your first mortgage payment. Generally, if you buy a home early in the month, the prepaid interest fee will be substantially higher than if you buy it towards the end of the month.
In locations where escrow accounts are common, a mortgage lender will usually start an account that holds funds for future annual property taxes and home insurance. At least one year advance plus two months' worth of homeowner's insurance premium will be collected. In addition, taxes equal approximately to two months in excess of the number of months that have elapsed in the year are paid at closing. (If six months have passed, eight months of taxes will be collected.) I would say to go with a year's taxes to be safe.
Recording Fees and transfer taxes:
This expense is charged by most states for recording the purchase documents and transferring ownership of the property. In PA, it is typically 1% of the purchase price per side, however, it can be more expensive in Philadelphia, Coatesville and some other areas. In Philadelphia, it can be closer to 2% per side.
Make sure you consult a real estate professional in your area to find out which fees--and how much--you will be expected to pay during the closing of your prospective home. Keep in mind that you can negotiate these costs with the seller during the offering stage. In some instances, the seller might even agree to pay all of the settlement costs.
Feel free to reach out to Rob Lawrence, and we can get you connected with a mortgage broker that will provide you with a better estimate of all the fees you should expect, along with your down payment. This way, you will know how much cash you need to close!
What Are Closing Costs in PA? - 2022