“C” is for Closing (Costs)

In Buyers, First-Time Buyers, Real Estate Advice, Sellersby Doug Phelps

This post is part of an ongoing series, “ABC’s of Real Estate.” Stay tuned for more posts as I run through the a-z of real estate and provide helpful tips for home buyers and sellers alike.

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If you’re thinking about buying a home, it’s important to understand everything you’ll be on the hook for financially, including closing costs.

What are closing costs?

Closing costs are the fees related to your home purchase that are paid at the closing of your new home. It’s important to understand that closing costs are above and beyond the purchase price. Don’t let this take you by surprise!

The closing costs are included in the loan estimate you will receive from your lender.  Your lender will issue you a loan estimate within three business days of receiving your completed loan application. This is just an estimate, however, so be prepared for the fees to change.

You’ll receive a closing disclosure statement at least three business days before your closing. This will outline the closing fees you’re actually paying. There shouldn’t be too much difference between the original estimate and this closing disclosure.

It’s important to know that some closing costs are negotiable. Your real estate agent can help you with this and also advise on whether or not the costs you are incurring are reasonable.

How much are closing costs?

You can expect to pay somewhere between 2 and 5 percent of the purchase price of your new home in closing costs. For example, a $300,000 home could incur closing costs anywhere from $6,000 to $12,000, depending on the lender and loan program you choose.

Keep in mind that the money for closing costs can’t typically be borrowed, as it might affect buyer ratios and change your loan qualification.

What’s included in closing costs?

Closing costs can include a wide array of fees. Your particular closing costs will depend on where you are buying, the property you buy, and the type of loan you are receiving. Some common fees included in closing costs are appraisal, credit report, policy premiums for title insurance, private mortgage premiums, and loan fees.

Any quality lender will go through the closing costs and explain exactly what is included.

 Can I avoid closing costs?

There are a few ways you can avoid closing costs. Sometimes, first-time home buyers can have their closing costs paid through government assistance programs. These costs are often paid off at the sale of your home.

You may also be able to secure a no-closing cost mortgage through your lender. Just keep in mind that while this might help you with your upfront fees, you may have a higher interest rate on the loan.