Step 21: Closing Fund
Earnest Money Deposit
An earnest money deposit is a sum of money that buyers provide as a show of good faith when making an offer on a property. It demonstrates your commitment to the purchase and is typically held in an escrow account until the closing. The earnest money deposit (usually 5%) can vary but is usually a fraction of the home's purchase price.
Closing Costs
Closing costs are expenses associated with finalizing the home purchase transaction. In Massachusetts, buyers are responsible for covering various closing costs, which can include:
1. Attorney Fees
Buyers often hire an attorney to review legal documents and represent their interests during the closing process. Attorney fees can vary depending on the complexity of the transaction and the attorney's rates.
2. Title Search and Title Insurance
A title search is conducted to ensure that the property's title is clear of any liens or encumbrances. Buyers typically purchase title insurance to protect against any unforeseen title issues.
3. Appraisal Fees
Lenders may require an appraisal to determine the fair market value of the property. Appraisal fees are usually paid by the buyer and can vary depending on the property's value.
4. Home Inspection
While not mandatory, a home inspection is highly recommended to identify any potential issues with the property. Buyers should budget for the cost of a professional home inspection. Inspection is paid by the buyer one the day of the inspection. Either by check or by credit card.
5. Mortgage Origination Fees
If you are obtaining a mortgage loan, there may be origination fees associated with the loan. These fees can vary depending on the lender and the type of mortgage.
6. Prepaid Property Taxes and Insurance
Buyers are often required to prepay property taxes and homeowners insurance for the first year at closing. These funds are held in an escrow account to ensure ongoing payment.
7. Recording Fees
Recording fees are charged for recording the deed and mortgage with the county or city government. The fees are typically paid by the buyer.
8. Transfer Taxes
In some areas of Massachusetts, transfer taxes may apply when ownership of the property is transferred. These taxes vary by location.