This article answers the questions of what are closing costs when buying a flipped house and explains some of the typical costs seen in the Seattle and Bellevue real estate market.
Like everything else in life, buying a flipped house isn’t free. There are costs. It’s important that you know about the costs associated with buying a home, so you aren’t caught off guard when it comes to the cash that is needed upfront for costs associated with closing on your new home. Closing costs are an area of misunderstanding for many homeowners which is why it is important to be familiar with the closing costs associated with buying a home. Any decent real estate broker or mortgage broker should be able to given you very close estimates for any home that you are writing an offer on.
? What Are Closing Costs?
When you close on your home loan, you’re going to need to pay some out-of-pocket expenses in the form of closing costs. Quite simply, closing costs are fees associated with your home loan that you are required to pay at the closing. If you are prepared to pay such costs, you can rest assured that there will be no delays and you’ll be a new homeowner in no time.
❓ What Are Closing Costs Based On?
Closing costs vary from state to state and even within localities. Often, closing costs are based upon the selling price of the home, the type of loan you’ve obtained and your market area. You should become familiar with your state’s laws regarding closing costs and fees so that you will know what to expect. In WA the typical closing costs are for the buyer sides share of title insurance and escrow fees. Most of the other costs will be dependent of what loan program and mortgage professional you have chosen. These can include application fee, appraisal fee, attorney fee, courier fee, credit report fee, loan origination fee etc.
? What Are Typical Closing Costs for Buyers?
There are certain closing costs that are paid by the seller and other closing costs that are paid by the buyer. When you buy a home, the most common closing costs you’ll see are:
- An application fee is charged by your lender to process your loan application.
- An appraisal fee will be paid to an appraiser to determine the fair market value of your home.
An attorney fee is paid to an attorney to review all the closing documents.
- An escrow fee is paid to the attorney or escrow agent handling the closing for their services.
- A courier fee is paid to cover the expenses of transporting documents to ensure the loan process moves along quickly.
- You’ll pay a credit report fee to enable the lender to pull your credit report.
- Escrow account fees include advance payments to be disbursed for property taxes and mortgage insurance.
- You may be required to pay the entire first year’s homeowner’s insurance premium at closing.
- You’ll want to order a home inspection to identify any structural problems or any necessary repairs before you close on the home.
If you’re making a down payment of less than 20 percent, you will be required to purchase private mortgage insurance (PMI). It is likely that you’ll have to pay the first month’s premium at closing.
A title search fee is paid to the title company that performs a search of your property’s records to identify any liens or problems with the title.
You’ll need to pay a recording fee to your county or town to record the transaction.
There are many closing costs and one way to determine what you’ll be responsible for is to obtain a Good Faith Estimate (GFE) from your lender. Pay attention to this estimate so you will know how much money you’ll need for closing.
? What Closing Costs Are Tax Deductible?
One of the major perks of buying a flipped house was that the interest you pay during the year is almost always 100 percent deductible. But, what about all those closing costs you pay when you close on your loan? Unfortunately, most of these costs are not tax deductible. However, some closing costs you’re required to pay can be deducted from your taxes. Such closing costs that are tax deductible include:
- Prepaid Mortgage Insurance
- Pro-Rated Property Taxes
- Mortgage Points
If you are buying an investment property, then you can deduct from your taxes transfer taxes as part of the closing costs. You can also deduct hazard insurance and association dues created by your investment property.
Do not go into the home buying process with blinders on. Make sure you have a good understanding of the closing costs that are involved. Some homebuyers are surprised when they are hit with out-of-pocket expenses at closing. You can avoid this shock by researching common closing costs and understanding what will be expected of you at the time of closing. Homeownership is rewarding, but there are many steps in the process to becoming a homeowner. If you come to the table prepared, this will ensure the process will go as smoothly as possible and lessens the chances of any setbacks taking place that might hold up the process.
Your real estate broker is the best source of information about the local community, real estate topics and specifically knowledge about buying a flipped house and real estate investments. Give Gabriel Heck a call today at 425-835-3108 to learn more about local areas, discuss selling a house, or tour available homes for sale.