Closing costs. What are they? Who pays them? How much are they? When are they due? What do they cover? These are all incredibly common questions for first-time home buyers, so don’t feel bashful about asking them. Closing costs encompass a variety of services and professional fees associated with real estate transactions. Although closing costs can be negotiated so that the seller pays them, it’s much more common and likely that you, as the buyer, will be paying your closing costs. Closing costs are not covered in your home mortgage loan, so preparing in advance is your best option. Here’s an overview of what closing costs are, and what they mean to you.
Closing costs come out at about 1-8 percent of the total value of the house you’re buying. So, out of the gate, you can over-shoot your estimate by considering your closing costs at about 10 percent of your home’s value. Then, when it is far less, you’ll be pleasantly surprised instead of stunned or shocked.
When you consider buying a house, in most cases, there’s a home mortgage loan involved. There are fees associated with checking your credit. Those fees will be accounted for in your closing costs. The lending agent working with you regarding your loan application and processing is likely going to get a commission for his or her services. This will be contained in your over-all closing costs.
The home you’re buying has a title. Sometimes, if the homeowner is in financial troubles, a lien or tax hold is placed against the property, meaning that property cannot be sold until the debt is satisfied. Before you can take possession of the house, you must first verify a clear title. This will be taken care of for you, but the fee for the title check will be included in your closing costs.
Before the bank is willing to supply the funds for the loan, it requests two things: appraisal and inspection. The appraisal is where an independent appraiser assesses the property to verify its worth. The bank wants to make sure the home is worth what you’re borrowing. The home inspection is done by an independent inspector who verifies the condition of the home. Some examples of what an inspector may be looking for is termite damage, damage to the roof, and functionality of the major systems of the property, such as electrical, plumbing, heat and air, etc. These services will likely be arranged for you, but their fees are added into your closing costs.
There are legal fees involved with preparing the title for transfer, and in drawing up the contract for the transfer of ownership of the property. These fees are also contained in your closing costs.
Your real estate agent as well as the seller’s real estate agent have worked hard to bring the deal to the closing table, and they don’t get paid until the deal is done. The commission for the seller agent and for the buyer agent are both contained in the closing costs.
Closing costs are not covered by your home mortgage loan, nor is your deposit against the loan. Know that when you engage in a real estate transaction as a buyer, you will require cash out-of-pocket to cover these closing fees. But remember, if you’re pinched for cash and applying all of your savings to the down payment, you can negotiate with the seller asking the seller to pay closing costs out of their proceeds from the sale of the home. However, the seller has the right to deny that request, and may choose another offer in place of yours if the closing costs are included.
One way to reduce closing costs is to lower your home buying budget. Since closing costs can be measured to about 1-8 percent of the value of the home, buying a home of lesser value may decrease your closing costs.
If you’ve never purchases a home before, closing costs can be confusing and seem expensive. But if you understand how closing costs are accumulated and an estimate of what they run in total, you won’t be blindsided on closing day. For more information on the home buying process, call the Team Douglas at 951-529-9159.