Buying and selling will include a bunch of jargon you are not likely to be fully informed on. We’re here to help.
So this is a little bit of a broader term that covers a few different things: attorney fees, title searches, title insurance, taxes, lender costs and some expenses on the home such as homeowners insurance. While there is no set price for this, it can be negotiated to a certain extent but only for certain items. It is imperative that you plan ahead to have money after your down payment for your closing costs. Typically a general rule is that most closing costs will average 2% – 5% of the home’s cost. You won’t be left to guess that amount alone however. Your lender will send you a document that includes an estimate of closing costs. In all reality there are 3 parts of the closing costs that the home buyer needs to pay; lender fees, title company fees and prepaid costs.
- Lender fees: typically lenders will calculate their costs into one fee. Some other lenders will break them down into various fees. It’s just the costs that the lender incurs with things such as appraisal costs, administrative fees, processing fees, credit check, transfer taxes and underwriting fees. Though those are the typically charged fees, there are variables such as a flood certification, if it is deemed required.
- Title fees: A large portion of your closing costs are going to be title related. Title insurance being one of them, is just to ensure the lender is covered up to the amount that is loaned out. Title insurance also helps you out in the event that the previous owners had back taxes owed on the property that you are looking at purchasing.
- Prepaid costs: exactly as it sounds. Money that is paid on items due before the closing on the house such as homeowners insurance and property taxes. You may be exempt if you put 20% down or more, but check with your lender. They are there to help you.
Now it comes down to who actually is paying the closing costs. Surprise! Both the buyer and seller! You both will have costs due however what you each pay depends on what you both negotiate. Real estate agents also receive commissions from all of their hard work but don’t fret! That comes from the seller, not you.
Can you get out of closing costs? You’re not likely to do so but you might be able to transfer the cost to the lender or the seller! This will help your out of pocket costs at the time of your closing. With having the lender pay closing costs, you’re looking at a higher interest rate so that they see the money back. So it’s sort like do you want to pay it at once or a bit of it monthly? Having the seller pay the closing costs will likely mean that the homes purchase price will increase as well. In the end you have 3 options: you pay the closing costs, the lender does but your mortgage payment increases or the seller pays but the purchase price will increase. Discuss with your lender what is your best option.
Hopefully this gave you a bit of insight on closing costs and their purpose. Home buying isn’t scary when you’re equipped with insight! Also your agent knows the ropes, especially if you work with one of ours; trust them to help you make all the right decisions!