First-time home buyers often experience sticker shock as they prepare for closing. While they are clearly aware of what they offered to pay for the property, the amount of funds they must bring to closing will be quite a bit higher than the final purchase price.
Buyers typically have to cover a range of closing costs when purchasing residential real estate. Those closing costs can be quite expensive, and some of them require more than one payment. Prospective home buyers can group closing costs into non-recurring and recurring costs.
Non-recurring costs are one-time expenses
Most of the charges included on someone’s settlement statements are one-time or non-recurring closing expenses. Title companies typically charge a fee for the use of their facilities or for coming to a different location, which would be a one-time cost. The premiums paid for title insurance are also non-recurring closing costs. Those with a mortgage often need to pay for two policies, a mortgagee policy and an owner’s policy. Costs paid by buyers at closing further include attorney fees, transfer taxes and recording fees. There are also costs associated with Inspections, appraisals and surveys which are only necessary prior to closing. Sometimes buyers pay a portion of the real estate commissions, a practice that may become more prevalent in the future. Therefore, these expenses are non-recurring costs.
Recurring closing costs are ongoing responsibilities
A handful of the costs included on a settlement statement are recurring expenses. These costs continue to accrue or arise even after someone assumes possession of their new home. A buyer may need to pre-pay interest as part of their mortgage agreement, and to reimburse the sellers for pre-paid taxes. People often need to make a lump-sum deposit into an escrow account to help cover homeowner’s insurance and property tax expenses via their mortgage payments. Another recurring cost would be private mortgage insurance premiums which increase the monthly mortgage payment and may factor into how much people can comfortably offer for a residential property. Condominium or homeowner association fees, if applicable, are also among the recurring costs that buyers should expect to pay.
Buyers must be provided with an estimate of these costs early on, and also prior to closing.
Closing costs require careful planning, as they can exceed what people have set aside in savings in some cases. Buyers who understand the expenses involved in residential real estate transactions may feel comfortable making offers and evaluating their closing costs.
Learning about recurring and non-recurring closing costs can help people better evaluate a prospective real estate transaction. Reach out to the team at Max L. Lieberman & Associates P.C. for support at 610-936-6612 when preparing for a real estate transaction.
