Real Estate 101: Recurring vs Non-Recurring Closing Costs

Closing costs are often an expense that is overlooked by first-time home buyers. However, these real estate expenses can cost into the thousands. In other words, you need to be prepared for these expenses or risk losing the house you’ve worked so hard to find. You also need to be aware that some closing costs are recurring, while others aren’t. The following will help explain the difference and help you prepare for what to expect when closing the sale of a home.

What Are Non-Recurring Closing Costs?

Non-recurring closing costs occur only once during the sale of a house. Non-recurring fees include title policy fees, fees for the attorney, appraisal fees, home inspection fees, and other fees that will only be paid once.

What Are Recurring Closing Costs?

Recurring closing costs continue to come due long after the purchase of the home. These fees can include insurance on the mortgage, property taxes, fire insurance premiums, and prepaid taxes. Some recurring fees will be due monthly, while others will only be due yearly. It helps to put money back each month for larger recurring closing costs, such as property taxes, which can total a few thousand dollars each year. Also note that some of these costs will be collected in advance by the mortgage company and held in an escrow account.

How Much Are Closing Costs?

Homes that cost over $200,000 carry closing costs of around 3-percent. Homes that cost less than $200,000 carry a higher percentage. The exact cost of closing costs can be dependent on the point and origination fees a lender charges. It’s important to read the full-disclosure to understand how much closing costs will be. For example, the closing costs on a $300,000 can cost between $3,000 to over $12,000.

Who Pays Closing Costs?

Don’t always assume that the seller will be able to cover the closing costs. Always check with your lender before negotiating this part of the offer. In some cases, the seller is limited to financing up to 3% of the closing costs when the lender will be financing 100% of the loan. However, if you’re putting down over 20% for the down payment and have a great FICO score, the lender may allow the seller to fund up to 6% of the closing costs.

Closing costs are something you must understand before you fall in love with a home. This means having a healthy down payment that not only covers at least 20% of your purchase price, but also covers the closing costs just in case the seller is prohibited from covering the costs.

About the Author: Twanda Aliaga and her husband are currently looking at Norton Commons homes for sale after renting for 15 years. They’re being careful about budgeting for closing costs and the recurring expenses they don’t have right now.