Buying a new home is exciting, but closing costs can sometimes be an unexpected surprise. Here are a few things to read over to help you understand what exactly closing costs are and how to budget better for them during the homebuying process.
Closing costs are various fees wrapped up into one that cover the services and expenses required to make the mortgage final. Anytime you buy or refinance a home, closing costs will be incurred.
Closing costs will typically run between 2-5% of the amount of the loan. For example, if you are purchasing a home for $200,000, you could expect to pay around $4,000-10,000 on closing day. So while it may be easy to dream about new furniture and decor for your home, keep these costs in mind and be sure to save sufficiently.
Potential property-related fees that may be included in the closing costs are the appraisal fee and home inspection. Lenders want to know if the property is worth the amount you are applying to borrow and if the value will be recouped if you default on the loan. Almost all lenders require a home inspection to take place, especially if you are applying for an FHA loan.
Loan-related fees would include the application fee, which covers the processing cost for requesting a new loan. Application fees will vary by lender. Attorney’s fees are also typically included as most states require an attorney to be present at real estate closings. These fees will vary depending on how long the attorney works to prepare everything for closing day.
Property taxes, annual fees and insurance are another factor of closing costs. You will usually pay a couple months’ worth of city and county property taxes up front at closing, as well as annual fees such as HOA. Homeowner’s insurance premiums are typically paid up front as well.
Make sure your writing hand has been stretched before closing day, because you’ll go through a large amount of paperwork! The loan estimate and closing disclosure are multiple-page documents that require a plethora of signatures and initials.
Hopefully this gives you a better idea of what to expect on closing day. Don’t forget to save, save, save and ask as many questions as you need to during the homebuying process. Realtors and lenders are experienced to help guide you along and make this as easy as possible.