Closing Costs in Missouri: What Buyers and Sellers Actually Pay

Uh when they ask how much money they need cuz down payment is only half the equation. Generally, the other half is closing costs and and so closing costs is a is a big bucket of things. So, do you want to explain kind of what that is just in in plain language? Like, what is closing costs and why is it thousands upon thousands of dollars as opposed to Yeah. Yeah. a lot of times people pay more in their closing costs than they do in their

down payment. So, to break up closing costs, you have your lender origination fee, which that's the portion that actually goes to the lender that you're working with. Yep. Then you have the third-party charges that are required depending on the loan program you're doing. Lenders can't mark those up. Now, I will say I have seen loan estimates from other lenders and for whatever reason the costs can be different. They're not supposed to be making any profit on those third-party fees, however. So, you

have that. Then you have what's called prepaids, which are your real estate taxes for the property, the homeowner's insurance for the property, and then prepaid interest. And I really want to highlight that because that's become a bigger deal because, you know, when rates were in the twos and threes prepaid interest didn't make as big of a deal. Yeah. Right? Yeah. You know, if you closed at the beginning of a month then you go almost 2 months before your first payment. I'll explain

that a little bit more in a moment. But if the rates were at twos and twos or threes even though there's 30 days of prepaid interest it didn't amount to as much as it does now. With where in the in rates, you know, I do want to say historically speaking, rates are are still in the low normal range. Absolutely. So, anyone that thinks that they're going to go lower, I I'm just I'm not holding my breath that they're going to go I hope

they do, but I just am not convinced that that would happen. But but a big thing when people ask me how much closing costs are, I one of the first questions that I've started asking them within the last couple of years is, "Well, what's your closing date?" And and a lot of times, uh, you know, they they it's kind of confusion like, "How would the closing date impact my closing costs?" And I go, "Oh, it depending on your loan amount, it can affect your closing costs

by a thousand, by 1,500, by 2,000 dollars if it's a really big loan." Um, so part of that closing cost is prepaid interest. And when it whatever month you close in, there's not a payment due on this new mortgage the month you close in or the month after, it's the following month your first payment comes to you. So, if you close at the beginning of the month, let's say you went under contract right now, uh, uh, so right now is late June, let's say you want

to close August 1st. Yeah. You're going to go all of August, all of September with no payment. Your first payment's going to be due October 1st, not considered late until the 16th of the month, so there's there's some wiggle room in there depending on when you're paid to make your payment and not be late. But in that scenario, you have like 30 days of prepaid interest. Based on your loan amount and what the interest rate is, if you have a decent size loan amount,

that could be an extra thousand to 1,500, maybe 2,000 dollars of closing costs, but you go two months before your first payment's due. Now, if you close like the end of July, like July 30th, you're going to have your payment's going to feel like it comes due sooner and it's going it it actually is. Instead of you won't have a July or August payment, but your first payment is due in September. Yeah. But as a result, your closing costs might be a thousand to

1,500 to 2,000 dollars less because you have less prepaid interest. And I do I do want to mention, um, on the taxes and insurance that that typically the lender your will want you to have 12 months of that into an escrow account. So, for real mass sake, say your property taxes are $2,000. That's $2,000 of closing costs that you're putting into account. Now, you're not really losing that money because it gets it gets used to pay your taxes and insurance, but it's real money out

of pocket at closing that you have to come up with or find a way to to offset, which we'll talk about here in a minute. Let me break that down a little bit more. So, it's for when you're buying a house, all the loan programs are we're going to require that buyer to have their homeowner's insurance paid up a year in advance, and that takes place at the closing table. That's not something as soon as they go into contract, they're not writing a check. I

would suggest they don't do that. Just let's take care of it at the closing table. Yeah. I've had people try to be helpful, and they do that. We figure it out, but it's just not the best way to do it. Okay, so you're always paid up a year in advance on insurance. That That is because you don't want to pay something like that month to month. If that payment got lost in the mail and your house burned down, you just don't want to be

in that scenario. It's not good for you. It's not good for the lender. All the loan programs require it. So, it's might even a you know, it's not a option. But, in addition to that, generally it's three to four months of real estate taxes and insurance. Now, you mentioned real estate taxes in 12 months. What happens is that, let's say you close on a house in December. The county's only going to care about who owns the house the end of in December. Yeah. And

that's not fair for your buyer if they're buying a house in December to pay 12 months of taxes. Yeah. Yeah. 12 months of taxes gets put in their escrow. But, generally three to four months from your buyer, the rest of those months come from the seller at the time of closing. Yeah. Good point. Then, collectively in that scenario, 12 months would be put into escrow and then would pay that tax bill. Yeah. So. So, in our market, I mean, I'm

just going to give a number just so people can kind of understand. It's pretty common for closing costs to run $6,000 ish. say so. And again, if you're talking about a luxury home or I mean there's there is lots of variables. If you get outside of our higher tax counties, Greene and Christian County, of course that that tax amount goes down pretty substantially. So there's a lot of factors, but but I would say the majority of my deals are somewhere in that 6 to

8,000 dollar range. And so is why, going back to why it's so important for buyers to get pre-qualified in advance so they the lender, once they know their situation and has an idea on when they might close, they can really get close on this. Oh, yeah. Yeah. One component that's hard to do is homeowner's insurance is up to, you know, we mentioned that already. And one thing I didn't mention, but is very true, is that the buyer gets to choose whoever they want

for homeowner's insurance. As you mentioned, Zac, depending on how old the roof is of the house they find, how far it is from the fire department, if it's a volunteer or paid fire department, all that matters as well. That's one thing that we really try to help estimate, and I feel like we're pretty accurate on it, but that's one that I tell people at the end of the day, you get to pick I mean, you you could choose the most expensive homeowner's homeowner's insurance provider, and

I can't say you can't use that. Right. It's going to It's going to cost you, but yeah, absolutely. And so that's something that, you know, if people are being very conscientious about their insurance rate and that kind of thing, that's something that we we proactively ask, like how important is this to you because you may love this house, but the roof's 13 years old, and in our market, 13 years old might as well be ancient, and the insurance company, I promise you, is considering that

basically replaceable, and so they will either not insure it, which has happened recently where we've had deals Yes. almost die because they they couldn't get insurance on the roof, or the the rate is going to be extremely high. And so I've seen where we've gotten sellers to replace roofs because of that reason and the original quote was two to three times what the new quote with the new roof is. I mean, that's how impactful that is. And so, that's an important piece of of

knowing kind of what you're after.