Paying rent can be stressful. Well, there is nothing as comforting as living in your own house. Buying a house requires adequate planning and strategy to ensure you get the value for your money. This article aims to expose you to closing costs and how much are buyer closing costs to help make your home buying experience a remarkable one.
What are Closing Costs?
Closing costs are the expenses incurred when buying or refinancing a home. They are paid to symbolize the completion of a real estate transaction. Closing refers to the point in time when the property is rendered from the seller to the buyer. Closing costs are paid for by either the buyer or the seller.
Who Pays Closing Fees
Albeit, most fees are paid by the buyer and some by the seller, you can negotiate some costs depending on the market. Most buyers believe that the only fee payable by the sellers is the realtor’s commission. Nonetheless, intelligent buyers may, at times, refer some costs to the seller.
Buyers cover the lion’s share of the closing costs. However, you may persuade your sellers to share some expenses paid in advance such as flood and hazard insurance premiums, tax and insurance escrow deposits, per-diem interest, and property taxes. If your seller is considering selling the home with urgency, they may be more likely to incur more impending closing costs.
Examples of Closing Fees you Should Expect
Closing costs vary depending on the property you buy, where you live, and your select loan. Examples of closing fees include;
- Attorney Fees- You are likely to incur attorney fees. These expenses pay for the lawyer who reviews the closing documents on behalf of the lender or buyer.
- Appraisal- These fees are paid to the appraisal company pursuant to confirmation of the fair market value of the home you are purchasing.
- Escrow fee or Closing Fees- This is the amount payable to the title company or escrow company for overseeing the closing. The company sees to it that you close as an independent party in your purchase.
- Credit Report- A credit report is also required to get your credit score and history. Your credit score is used to determine the rate of interest you will pay.
- Home Inspection- In the process of buying your home, you are likely to get a home inspection to assess your property’s condition and check the repairs required before closing.
- Homeowners Insurance- These expenses are designed to cover possible damages to your property. Insurance for the first year is often paid at closing.
- Application fees- This type of fee is charged by some lenders for application to purchase the property.
- Title Search- If your target home is not a new property, your lenders may send a representative to search local property records to ensure they are valid. For this reason, you are likely to incur title search fees.
- Underwriting Fee- Also known as processing or administrative fees. These costs are incurred to evaluate your mortgage.
- VA, FHA and USDA fees- If the Federal Housing Administration secures your loan, you will must pay for FHA mortgage insurance premiums. You will pay guarantee fees if your loan is guaranteed by the Department of Veterans Affairs or the U.S Department of Agriculture.
Different cities and states may charge you extra fees depending on your home location. Therefore, it is crucial to consult your real estate partner to be aware of the various closing costs you are likely to incur.
How Much are Closing Fees
The expenses you pay in closing costs depend on your home price, location, and how tight the local market is. On average, closing costs range between three to five percent of the total cost of purchase.
Paying your closing fees out-of-pocket is the most economical way to cover these costs. You may also finance them by incorporating them into your loan. The downplay is that you will have to pay interest on these costs throughout your mortgage.
Your lender ought to outline the closing costs in the loan estimate. Thus, you should scrutinize the document you receive and ask for clarification on complicated areas.
How to Prepare for Closing Fees
One of the methods of preparing for closing costs is to consult a lender before the entire process. This will reveal to you all costs based on your kind of property. Your closing costs depend on your type of home and credit score. Closing costs tend to be higher than most borrowers initially assume; therefore, it would be vital to budget for them. Since home buying is a lengthy process, it would be best to be patient and prepare well.
How you Can Avoid Closing Costs
While it near impossible to avoid paying all closing costs, there are some costs that you can negotiate to save you money. Most fees are not rigid; thus, they are adjustable by the lender. You will need to ask about each cost separately. If a cost is not as clear, ask the lender for some clarification. Now that you have to incur closing costs, here are some ways you can use to circumvent the added expenses;
- Close at Month End- if you close at the beginning of the month, you will incur additional per diem interest. To be safe, you should schedule your closing at the end of the month.
- Look for a Royalty Program- In the states, some lending institutions help with closing costs if they use the specific lending institution to finance your purchase.
- Get the Seller to Pay- As a way to seal the deal, some loans allow the sellers to offer a contribution in good faith.
- Join the Army- Members of the military have closing benefits. Do your research to find out benefits entitled to veterans and service members.
- Apply for FHA Loan- if your income is low, you can apply for a Federal Housing Administration loan. This move will help cut down your closing costs.
- Wrap the Closing Costs into a Loan- This is an ideal way to get in your house if you have less cash upfront. In this type of agreement, your lender covers the fees, but you will have to pay a higher interest rate.
Owning your home is a dream come true. Before purchasing a property, you should know the various costs you will have to incur, as discussed above. It is also essential to consult with real estate professionals to know what you should expect.
