When you buy or sell a home in Maryland the standard form contract published by the Maryland Realtors will likely be used. Page one of the contract states the sales price, and that’s the headline which attracts everyone’s attention. But did you know that there is a potentially big surprise in store for buyers in the simple language of paragraph 51 on page 8? Unless you are expecting it, that paragraph will surprise you because it places thousands of dollars of costs on buyers – costs that are typically not well understood.
Paragraph 51 states simply that “Buyer agrees to pay all settlement costs and charges including but not limited to, all Lender’s fees in connection herewith, including title examination and title insurance fees, loan insurance premiums, all document preparation and recording fees, notary fees, survey fees where required, and all recording charges, except those incident to clearing existing encumbrances or title defects, except if Buyer is a Veteran obtaining VA financing, those prohibited to be paid by a Veteran obtaining VA financing, which prohibited charges shall be paid by Seller.”
Let’s try to break down what is included in “settlement costs” and put rough dollar estimates on those amounts.
Lender/Loan Fees
o Loan Origination Fee: Estimate 0.5% – 1.5% of the loan amount
o Application Fee: Estimate $150 – $500
o Underwriting/Processing Fee: Estimate $300 – $1,000 combined
o Appraisal Fee: Estimate $400 – $1,800
o Credit Report Fee: Estimate $20 – $50
o Discount Points: The borrower can choose to pay 1% of the loan amount per point up front to lower the loan interest rate.
Title Charges
o Owner’s and lender's title insurance: Estimate $2,700 or more combined
o Title examination: Estimate $950
o Survey: Estimate $350
Recording and Miscellaneous Fees
o Recording services: Estimate $125
o Judgment reports: Estimate $95
o Closing protection letter, lien certificate, cyber security fee: Estimate $200 combined
The buyer of a $400,000 Baltimore home, with a $320,000 mortgage loan, might see settlement costs in the range of $9,500. Keep in mind that “settlement costs” don’t include transfer taxes which themselves are substantial and are extra. Unless a first-time homebuyer, the buyer in our example should expect to pay an additional $6,000 in transfer taxes and fees.
The Maryland Realtors form reflects expectations about how the buyer and seller should interact and do business with each other. But, like many other provisions of the form, the way settlement costs are split is negotiable. A buyer can request that the seller provide “closing assistance” which is a negotiated dollar amount to help defray some of the buyer’s closing costs.
The buyer also has the right to select the settlement company and their lender. These are two more opportunities to compare prices and put competition to work for you. Buyers shouldn’t feel obligated to do business with companies affiliated with their broker if lower fees for similar service are available elsewhere.
