The Cost of Buying a Home in Utah: Understanding Closing Costs and More
Buying a home is a significant investment, and it’s important for home buyers to be aware of the average closing costs. In this article, I’ll go over some of the most common expenses you’ll encounter when buying a new home in Utah, including down payment, closing costs, real estate agent commissions, and other fees associated with the purchase.
In hopes to make things applicable, I’ll be referring to one of my previous transactions. Scroll to the bottom of this post to see a breakdown of all costs associated with the sale. My clients were first-time home buyers and bought a 2,200-square-foot bungalow in the heart of Salt Lake City. The home sale’s price was $670,000.
Earnest money is a deposit made by a home buyer to demonstrate their good faith, seriousness, and commitment to purchasing a property. This deposit is usually made when the buyer submits an offer on a home, and it is held in an escrow account by a title company. If the sale goes through, the earnest money is typically applied to the buyer’s down payment and closing costs.
Conversely, if the sale falls through, a refund of the earnest money will depend on the terms of the purchase agreement and the reasons for the cancellation of the sale. In some cases, the buyer may forfeit the earnest money, while in other cases, they may be able to recover it. In truth, there is no required set amount of earnest money required. However, the more you put down the more serious you will appear to the sellers. My clients put down 10,000 for earnest money on their Salt Lake City home.
Once under contract, buyers proceed to their due diligence period which can last anywhere from a week to 10 days, depending on what was negotiated in the contract. Home inspection fees begin at approximately $400 and go up depending on the size of the home. My clients opted for a walkthrough with a home inspector who agreed to do a “walk and talk” rather than a formal written report. They paid $150 for this service.
For the most part, not every inspector offers a walkthrough without a written report. For the purpose of having a legally-binding written record, I always recommend a full home inspection. Otherwise, it’s difficult to negotiate repairs or make claims to your home warranty later on. My clients brought during a very competitive season when home prices were increasing quickly, so they brought the home inspector to the open house and made an offer that same day! Luckily it worked out well for them.
Once the due diligence period ends, the lender will order the appraisal which you will be responsible to pay for ahead of time or it may be paid at closing depending on the lender’s requirements. My clients paid $550 at the time the appraisal was ordered. Side note: At this point, my clients had spent $10,700.
At this point, the transaction goes into the hands of the lender. They will ask you to provide documentation such as pay stubs for the past 2 years, tax returns, gift letters if applicable, etc. This is called the underwriting process. Once they analyze the documents, they will -hopefully- approve your financing and give you the “clear to close” and you can set a closing date with your agent. This process took approximately 3 weeks for my clients.
Average Closing Costs in Utah
Average closing costs in Utah include all fees associated with the closing (or settlement) of a real estate transaction. Costs can include loan origination fees, title insurance, title fees, appraisal fees, and more. They are paid at closing (also called settlement). Closing costs vary and will depend on your credit score, loan program, and how much money you put down. The average closing costs for a home in Utah are anywhere from 2% to 5% of the loan amount.
I will break down the average settlement costs in Utah in the paragraphs ahead. However, I have to say that the best way to get an idea of how much your closing costs will be is to get pre-qualified with a lender. I recommend you get loan estimates from 3 different lenders and decide from there.
Generally, mortgage interest rates are pretty standard across the board. Meaning, lenders don’t decide the rate for the mortgage loan. However, some mortgage lenders may be able to make adjustments and offer better rates based on how much money you put down, or by increasing your loan cost to buy down your interest rate. My clients got a physician loan and put zero down. Their closing costs were just over $8,000. I will break down what they paid for each of the services below, which are all included in the closing costs.
A loan origination fee is a charge by the lender to cover the costs of processing the loan. This fee can range from 0.5% to 1% of the loan amount. In my experience, some lenders will waive this fee to get your business. At the same time, If they don’t waive it, paying it may be worth it if it means a significantly lower rate than other lenders are offering! On the flip side, a lender that offers a lower rate may not always be the best choice if you end up paying an obscene amount in fees and/or receiving poor service.
With this in mind, my clients paid $1,095 in loan origination fees. They were happy to pay this fee because the lender was the only one that offered a physician loan with zero down, no PMI, and a rate of 1% lower than the going rate at the time. Other fees associated with the loan were a credit report fee of $37.76, a flood certificate fee of $7.50, a mortgage electronic service fee of $25.70, and a tax service fee of $80.81. Scroll to the bottom for a summary of all fees.
A home appraisal is an assessment of the value of the property. It also sets the bar for how much the bank will loan on the home. For example, if the purchase price is 300,000 and the appraisal comes back at 295,000, the bank will only loan on a 295,000 home value. In such a case, the price of the home would need to be re-negotiated by your agent. If the seller refuses to lower the price, you as the buyer will need to come up with the difference of 5,000 at closing or walk away from the sale. This is called the appraisal gap.
Generally, appraisal costs can range from $300 to $700. My clients paid $550 for their appraisal. Side note: their appraisal later came back at $705,000. That is 35,000 above their purchase price. Is there anything better than moving into your first home and gaining instant equity!?
The Title company will perform a Title search during the purchase process. Title insurance protects the buyer and the lender from any problems with the ownership of the property. As far as cost, it’s a one-time fee and it’s usually based on the purchase price of the home. My clients paid 1,986.00 in total Title fees which included Title Insurance of $1,641, a recording and closing protection fee of $90, and a settlement fee of $250. Scroll to the bottom for a summary of all fees.
A home warranty is optional and can be paid by the buyer or the seller, depending on what is negotiated in the purchase contract. A home warranty typically includes one-year coverage and replacement of big-ticket items inside the home such as broken appliances, plumbing, electrical, furnace, and AC. Thus, I highly recommend a home warranty to all of my clients to offer peace of mind in the event something breaks down during the first year. If you’re in Utah, I recommend Ibex. They offer free furnace filters and have great customer service. My clients paid $600 at closing for a one-year home warranty.
Realtor fees are negotiable and will vary per transaction. While there may come a time when buyers will have to cover their agents’ fees, in Utah, it is currently the seller’s responsibility to pay realtor fees for both sides of the transaction. Thus, my clients did not have to worry about this expense.
Other expenses included in closing costs are those that are pro-rated and vary depending on what time of the month/year you close on your home. Among them are tax and government fees, property taxes, homeowner’s insurance, pre-paid interest, and mortgage insurance. My clients paid a total of $4,753.29 in “other” costs which I’ve broken down in the example below.
Sample Breakdown of Closing Costs
|Earnest Money (paid when the offer was accepted)
|Home Inspection (pre-paid)
|Loan Origination Fee
|Home Appraisal + other fees associated with lending ($550 pre-paid)
|Homeowner’s Insurance premium
|TOTAL CLOSING COSTS
|Minus earnest money and pre-paid expenses
|My clients received a check at closing for ——————————————->
Closing costs totaled about 1.1% of the purchase price of $670,000 for my clients in the example. You can expect a similar scenario if you qualify for 100% financing. However it’s important to remember that most FHA loans and conventional loans require 3-5% down. While this would’ve added another 20-30K to their closing costs, it would’ve also lowered the loan amount and monthly payment.
Like I mentioned, If you qualify for a physician loan, VA loan, or any other “zero down” loan program, the scenario would be similar.
As I have shown, the average closing costs in Utah can vary depending on a number of factors, including the type of loan, and the purchase price, among others.
I hope this helped you get a general understanding of the average closing costs in Utah. They may be similar in other states. All things considered, when you’re ready to buy a home, it’s a good idea to ask your lender and your real estate agent for a comprehensive list of all the costs you’ll need to budget for when buying a home in Utah.
Additionally, it’s important to do your research, compare offers from different mortgage lenders, and work with a real estate agent who can connect you with reputable lenders and help you navigate the process. The good news is that with a bit of preparation, you can make informed decisions and find the best way to buy your first or next home!