Closing Costs and What You Need to Know
Closing costs are an inevitable part of the home buying process so it’s important to know what they are and to understand just what is expected of you before you get started. If you’ve never bought a home before this can be a confusing part of the process. Know exactly what closing costs entail so you are able to ask questions before you get going.
Know What Closing Costs Are
Lenders and service providers will charge you a number of fees at the completion of your home purchase that will be paid with your down payment and interest associated with your mortgage. These fees will be paid as the title is transferred to you. This cost is something you should plan for when planning how to finance your home purchase, but it can be difficult to calculate. A safe estimate of what you can expect pay is between 2 and 5% of what you are actually going to pay for the home. After you submit your application for your home loan your lender is required to give you a good faith estimate of your closing costs within 3 days; however, this can change up to 10% by the time everything is done.
What are the Fees?
Closing costs can include a variety of different fees and costs that you likely haven’t considered and that can vary depending on your lender and the home’s location. Administrative fees, settlement fees, lender charges, and escrow costs are all fair game when it comes to closing on a home. Title service fees, appraisals, title insurance, home inspections, attorney fees, and any other cost associated with finalizing your sale can be considered settlement fees and costs. Origination fees for the process of actually getting you the loan are also charged by your lender.
One other closing cost you can expect are amounts that you have to pay in advance for expenses you will be paying as a homeowner such as property taxes, daily interest and homeowner’s insurance. A portion of these payments will be placed into an escrow account that will provide you with a reserve in case of emergency or if the deal falls through.
Educate yourself about every aspect of the home buying process before you even start looking at homes; it’s important to know what you’re getting yourself into. You need to take the time to speak with your lender and your agent to make sure that you know all that you can about what closing costs to expect and make sure you understand them. Ultimately you cannot avoid closing costs, but if you know what’s coming ahead of time they won’t be an issue for you.