Before making the decision to buy a home, it’s important to plan for all the costs you will be responsible for. While you are busy saving for a down payment, don’t forget about the often overlooked closing costs. With all of the excitement of imagining your new home, remembering closing costs can fall through the cracks.
Here is some helpful information on what those costs are and how much you should budget for them.
What Are Closing Costs?
One possible reason people are surprised by closing costs may be because they don’t know what they are or what they cover. Bankrate defines closing costs as the fees and expenses that must be paid before becoming the owner of your home, condo, or townhome.
Closing costs are the additional fees and payments you have to make at closing. Closing costs can vary by location and situation, which is why it is so important to partner with an experienced agent who can help you navigate and explain these expenses.
While everyone’s buying journey is different, here is a definition of some of the most common closing costs that you might encounter.
Appraisal Fee
This is the cost for a professional analysis that is used to estimate the value of a home. Appraisal allows you and the lender to validate a home’s worth to as you seek financing.
Loan Origination Fee
This is a fee that is charged by your lender for processing a loan application. This fee is usually a percentage of the total loan amount.
Title Insurance
Similar to any other insurance you may buy, title insurance protects you and a lender from issues in a title. These can include public record errors, liens, or unauthorized easements. A title company will research all property information and records to ensure a property is free of defects. There are different types of title insurance you can purchase, so speak with an agent for more info.
Escrow Services
These are costs that are paid to an escrow company in exchange for their services, including holding the finances associated with purchase , collecting paperwork, and acting as a neutral middleman in the home buying process.
This list is in no way comprehensive of all the fees that you might need to pay. According to an article by Freddie Mac, additional closing costs can include government recording costs, credit fees, survey fees, and underwriting fees.
Each loan and closing costs agreement is different, which is why it is so important to discuss these fees with your agent and a mortgage expert.
How Much Are Closing Costs?
According to the same Freddie Mac article mentioned above, closing costs are typically between 2% and 5% of the total purchase price of your home. With that in mind, here’s how you can get an idea of what you will need to budget.
Let’s say you find a home you want to purchase at today’s median price of $384,500. Based on the 2-5% estimate, your closing fees could be between $7,690 and $19,225.
Again, these figures could change based on location, the specific property, and the services employed in purchasing your new home. But having a rough estimate can give you a leg up in the process, both in saving for these added costs and when making an offer.
Make Sure You Are Prepared To Close
The best way to do that is by partnering with a team of trusted real estate professionals. That gives you a group of experts to help you understand how much you’ll need to save and what you’ll want to be prepared for. It also means you have go-to resources for any questions that pop up along the way. Your Seven Gables agent is more than happy to discuss closing costs with you.
Bottom Line
Planning for the fees and payments you’ll need to cover when you’re closing on your home is important. Partnering with a local real estate professional can give you the guidance and confidence you need throughout the process.
