What are nonrecurring closing costs when buying a house?
Buying a house involves many expenses, and nonrecurring closing costs make up a significant portion of your upfront investment. I want to help you understand these one-time fees that pop up during your home purchase, so you can budget properly and avoid surprises at the closing table.
Nonrecurring Closing Costs: One-time expenses paid during a real estate transaction's closing process, including items like loan origination fees, appraisal fees, title search fees, and inspection costs. These charges differ from recurring costs like property taxes or insurance since they are only paid once when finalizing the purchase.
Common Types of Nonrecurring Closing Costs
Let's break down these costs into categories so you can better understand what you'll need to pay for:
Lender-Related Fees
Your mortgage lender will charge several one-time fees to process your loan. These include:
Loan origination fees: Usually 0.5% to 1% of your loan amount
Application fees: Cover the cost of processing your loan application
Credit report fees: Pay for pulling your credit history
Points or discount fees: Optional fees to lower your interest rate
Property-Related Fees
These fees relate directly to evaluating and inspecting the property:
Home inspection costs: Typically $300-$500
Appraisal fees: Usually $300-$700
Pest inspection fees: Around $100
Title and Legal Fees
These costs protect your ownership rights:
Title search: Verifies the property's ownership history
Title insurance: Protects against future ownership claims
Attorney fees: Legal representation during closing
Recording fees: County charges for recording the deed
Who Pays What?
The distribution of closing costs varies by location and market conditions. Buyers typically pay most nonrecurring closing costs, including lender fees, inspections, and appraisals. Sellers often cover real estate commission fees and sometimes title insurance.
You can negotiate some costs with the seller. During a buyer's market, sellers might offer to pay more closing costs to attract purchasers. During a seller's market, buyers usually shoulder more of the burden.
Planning for Nonrecurring Closing Costs
I recommend setting aside 2-5% of your home's purchase price for closing costs. This range accounts for regional variations and different loan types. You'll receive a Loan Estimate from your lender outlining expected costs within three business days of applying for your mortgage.
Common Misconceptions
Many first-time homebuyers mix up recurring and nonrecurring costs. Property taxes and insurance premiums are recurring costs - you'll pay them regularly. Nonrecurring costs happen just once at closing.
Some buyers think all closing costs are set in stone. Actually, you can shop around for several services, like title companies and home inspectors, to find better rates.
Tips for Managing Nonrecurring Closing Costs
Save money by:
Getting quotes from multiple service providers
Asking your lender to match competitor rates
Reviewing your Loan Estimate carefully
Working with an experienced real estate agent who can guide you through negotiations
Special Considerations
Different loan types offer various benefits regarding closing costs:
FHA loans: Allow sellers to contribute up to 6% toward closing costs
VA loans: Limit certain fees and prohibit others
First-time homebuyer programs: May offer closing cost assistance
Impact on Your Home Purchase
Nonrecurring closing costs affect how much cash you need at closing. If you're making a down payment, remember to factor in these additional expenses. Some buyers reduce their down payment to cover closing costs, while others negotiate seller concessions.
Final Thoughts
Understanding nonrecurring closing costs helps you prepare financially for your home purchase. At Bellhaven Real Estate, we guide you through each step of the closing process. Our team connects you with trusted lending partners and helps you understand all costs involved in your home purchase. Ready to start your home buying journey? Contact us for a personalized consultation.