You’ve earned a competitive interest rate on a mortgage, saved for the down payment, and are ready to call Kansas home. But there’s one more expense to consider: closing costs.
Closing costs encompass all administrative and legal services you will need to pay for before you receive the keys to your new home. For convenience, you pay these costs in a lump sum on closing day and typically amount to 2 percent to 5 percent of the home’s purchase price. Closing costs are paid along with your down payment.
If you’re buying a new home in Kansas, NewHomes here has put together the following guide on how much you should save for closing costs, a breakdown of what’s usually included, and how you can potentially reduce these costs.
How much are the closing costs in Kansas?
Closing costs in Kansas average, $2,042 for an average mortgage loan of $213,023, according to a 2021 report from ClosingCorp, which provides research on the U.S. real estate industry. That number represents 0.96 percent of the price of the house.
Sunflower state ranks 17th with the cheapest shutdown costs in the country. It’s safe to say that closing costs tend to be cheaper in the Midwest: Missouri, Indiana, Iowa, South Dakota and Wisconsin are among the 10 states with the lowest closing costs, with Missouri being the lowest at $1,290 for a home priced at $177,915. In terms of comparison, the national average closing costs are $6,087.
But Kansas homebuyers should expect to spend more than this calculation. ClosingCorp data excludes key expenses such as loan origination fees and private mortgage insurance (if you’re not applying a 20 percent down payment).
Closing costs can fluctuate depending on the price of the home and the complexity of selling the home. And keep in mind that home values have increased in Kansas: As of August 2021, the average sales price of single-family homes in the state stood at $272,197, up 9.4 percent from a year earlier, according to the Kansas Association of Realtors. If your goal is to allocate 2 to 5 percent of your home’s purchase price toward closing costs, you might consider closing costs ranging from $5443 to $13609 based on this updated price point.
What is typically included in Kansas closing costs?
So what exactly are you paying in closing costs? Here’s a closer look at the most common charges you’ll encounter, including state-specific details every homebuyer should be aware of:
Loan Origination Fees
Whether you’re working with a bank or a mortgage broker, loan origination fees are one of the first closing cost expenses you’ll incur. They are what your lender will charge you to set up your loan application, from securing your loan and providing pre-approval letters for your home search, to processing your financing. Loan origination fees are typically about 0.5 percent to 1 percent of your loan amount.
Credit Report Fee
Before your lender decides that you are a responsible borrower, you’ll need to conduct a full credit check, which includes getting your credit score to get a clear picture of how you manage the debt. Expect your lender to pass on the cost of requesting your credit report. If more than one borrower is involved in the mortgage application, you will need to double this cost.
Legal costs
While not required in Kansas, you may decide to hire a real estate attorney to help you with closing, especially if it is a complex home purchase.
Real estate attorneys can help you with all legal aspects related to buying your home, from drafting your purchase contract to making sure the transfer of the deed is signed correctly.
The cost of hiring a real estate attorney will vary, depending on how complicated the sale of your home is, where you are in the state, and the amount of work they will have to perform.
Escrow Fees
In Kansas, title companies, real estate agents, attorneys, and depository agents can perform closings. You may decide to hire a title company or escrow agent to manage your home purchase and make sure you close on time without delay.
The securities company will establish a neutral third-party escrow account to hold your funds. With this arrangement, the seller will not receive any money until both parties have fulfilled all the conditions for the sale of the house. The title company will also walk you through the checklist of things you should have completed before closing. It is customary to divide this cost between the buyer and the seller.
Title search and title insurance
You’ll need to pay a title search extractor to conduct a thorough search of your potential new home to verify the seller’s right to transfer ownership to you. They will review historical records such as deeds, court records, property and name indexes and other records to make sure the land you are buying has no pending property disputes, unpaid taxes, lawsuits, or lawsuits.
Once the title search is complete, you’ll need to cover your foundation with title insurance policies for both you and your lender. Title insurance protects both parties in case something is overlooked during the title search and there are “title defects” or claims to your property that have been lost.
While most insurance policies are paid annually, title insurance is paid only once at closing and cannot be transferred to the next buyer.
In Kansas, buyers typically pay for the lender’s title insurance policy, while sellers pay for the homeowner’s (the buyer’s) policy.
Transfer Tax
Here’s a silver lining for Kansas homebuyers: As of January 2019, real estate transfer taxes, also called mortgage registration taxes, were eliminated statewide. That’s one less closing cost expense you need to worry about.
Kansas is one of a dozen states that don’t have real estate transfer taxes. They are usually charged by local and state governments when the seller transfers ownership to the buyer.
You may still incur a small fee from your county to keep records and document the transfer of ownership. This is another fee normally charged by the buyer.
Property Taxes
One recurring payment that homeowners should familiarize themselves with is property taxes. In Kansas, tax rates vary depending on the county you live in. Homeowners in Allen County, for example, pay taxes at a rate of 1.65 percent, while in Woodson County, tax rates rise to 2.07 percent.
Generally, homeowners should save about $2235 per year on this annual expense, but this will fluctuate based on your county’s tax rate and the assessed market value of your property.
Count on paying this as a prorated expense at closing. Subsequently, property taxes can be paid annually or in two installments, so be sure to mark the due dates on your calendar.
Homeowners Insurance
Before closing, you should take out and pay for a solid homeowners insurance policy for the coming year. Home insurance is a mandatory purchase before transferring your mortgage so you can buy your home.
This is a prepaid expense, meaning it must be paid in cash and cannot be included in your home financing. It is crucial to have current homeowners insurance when you take possession because it covers any physical damage to your home caused by fire, wind, vandalism, or theft. It may give your lender peace of mind, but it should also do the same for you. Make sure you are aware of your coverage and make changes to your policy as needed.
Topography fee
ClosingCorp says Florida and Texas are the only states where surveying is mandatory for single-family homes. A surveyor is hired to set the precise boundaries of your potential new home. Your lender may insist that your property be inspected, especially if you are buying a large amount of acres or farmland with ambiguous boundaries.
Evaluation
Before closing, your lender will send an outside appraiser to your new home to make sure it’s priced correctly. If you can’t keep up with your mortgage payments and your lender needs to foreclose on your home, they need to know that they can sell the property to offset the outstanding balance.
The appraiser will evaluate the size, features, and condition of the home, as well as its comparison to similarly priced homes in the community, to determine its fair market value. Because your lender usually orders the appraisal, check with them about how much it will cost.
Home Inspection
A professional home inspector will check the health and safety of your potential new home by making sure everything is in good working order, from foundation to roof and everything in between.
The home inspector will point out existing issues, as well as those that could arise in the coming years, such as the need to replace major appliances or replace an old roof. This is excellent information because you can negotiate with the seller any solution before finalizing the deal.
Private Mortgage Insurance
If you don’t provide a 20 percent down payment, your lender will expect you to purchase private mortgage insurance, or PMI, in Kansas. PMI allows borrowers to qualify for a conventional loan, even if they make a down payment of 5 to 19.99 percent of their mortgage. Coverage protects your lender in the event of loan default.
This cost is not included in ClosingCorp’s closing cost expense count, but the PMI typically ranges from 0.25% to 2.25% of your outstanding loan balance, depending on the size of your down payment and your credit score.
How can I reduce my closing costs in Kansas?
If you’re looking for ways to offset closing costs, here’s a rundown of the key strategies you can try to save on this expense.
Closing cost assistance
Making use of state homeowner assistance programs in Kansas is the most efficient way to achieve the greatest reduction in your closing cost bill. With the First-Time Homebuyer Program, hosted by the Kansas Housing Resources Corporation, income-eligible homebuyers can set up an interest-free loan worth up to 20 percent of their home’s purchase price to cover the down payment in full. This would free up cash for closing costs.
The Kansas Housing Assistance Program helps eligible homebuyers with a 30-year fixed-rate mortgage and a grant of up to 5 percent of the home’s purchase price to cover down payment or closing cost expenses.
Don’t forget to also check out homeownership programs in your county. In Johnson County, for example, low-income homebuyers can apply for up to $10,000 in a deferred loan to help them with down payment and closing costs.
Get your finances in shape
The interest rate you get is also a critical time in the home buying process. If you have a great credit score when you apply for a mortgage loan, you could get a lower interest rate, which could save you thousands of dollars over the life of your mortgage. Therefore, it is worth getting your finances in order before heading to your mortgage broker’s office.
Save as much as you can for the down payment as well. The closer you get to the 20 percent down payment threshold, the less you’ll have to pay in PMI.
Compare prices
Look for the best interest rate for your mortgage loan or any other service provider you need during the home buying process. Read reviews, check references from friends and family, and look at service provider accreditations. Then get quotes from various service providers to find the best deal.
Concessions from the seller
During the process of negotiating the sale of a home, you will have some back and forth with the seller about who pays what, especially if you are in a buyer’s market where the seller is eager to make the sale.
You may be able to reallocate some of the closing costs to the seller. For example, you could ask the seller to pay some, or all, of your closing costs if you offer to submit a full-price offer on your home. If you’re building a newly built home, you can ask your builder to pay the closing costs tab in exchange for paying for certain improvements throughout your home.
Negotiate rates
When you receive a Closing Disclosure form, familiarize yourself with each charge line to understand and agree to the costs you incur. By closing day, the form must be up to date. Their job is to check for discrepancies, an increase in rates, or any surprise charges.
If you’re an established customer with multiple loan products a day with your lender, you might consider asking them to skip some expenses. The most obvious ones are often labeled as “junk fees,” such as flat rate fees, loan processing fees, and broker repayments.
Mortgages with no closing cost
Another solution is a “no closing cost” mortgage, in which your lender agrees to pay some or all of your closing costs. In turn, you pay a higher interest rate on your mortgage. Run some calculations before deciding that this is the best route for your end result. In the long run, this could cost you more money because of the increase in your interest rate.
Adding Closing Costs to Your Home Financing
Homebuyers who can’t scrape together the cash for closing costs may choose to transfer this expense to their mortgage loan. This way, instead of paying closing costs on closing day, the total is added to the monthly mortgage payments. While this is a convenient way to pay closing costs upfront, you must pay interest on closing costs over the life of the loan.
This option is not necessarily available to all homebuyers. You’ll need to check with your lender to see if they can accommodate this arrangement.