After saving for a down payment, looking for a home, and applying for a mortgage, closing costs can be an unpleasant surprise.
Knowing what closing costs are covered and what budgeting is required for them will facilitate the last part of the home buying process.
What are the closing costs?
Closing costs include the myriad costs for services and expenses required to take out a mortgage. You have to pay the closing costs whether you buy or refinance a home.
Most closing costs are the buyer’s responsibility, but the seller usually also has to pay some, such as the real estate agent’s commission. (Buying a house for the first time? Read our tips for first-time buyers.)
How much do closing costs cost?
The average closing cost for the buyer is between 2% and 5% of the loan amount. This means that if you bought a home worth $ 300,000, you would pay closing costs of $6,000 to $15,000.
The cheapest way to cover your closing costs is to pay them out of pocket as a one-time expense. You may be able to finance them by including them in the loan if the lender allows it. However, you then pay interest on these fees for the duration of the mortgage.
When you buy a home, you can compare prices and negotiate certain prices to reduce your closing costs. Some states, counties, and cities offer grants or low-interest loan programs to help first-time buyers complete the purchase. Check with your local government to see what is available.
Your lender should describe your closing costs in the credit estimate you received when you first applied for the loan and in the closing document you received the days before the agreement. Examine them carefully and ask questions about anything you don’t understand.
These are the rates that the buyer’s closing costs may include:
Appraisal Fees – It is important for a lender to know if the property is worth as much as the amount you wish to borrow. There are two reasons for this: the lender must verify that the amount needed for a loan is justified and ensure that you can recover the value of the house if you default on your loan. The average cost of a home assessment by a certified professional assessor is between $400 and $500.
Home Inhttps://www.expressmortgagequotes.com/spection: Most lenders require a home inspection, especially if you get a state-guaranteed mortgage, such as an FHA loan insured by the Federal Housing Administration. Before a bank lends you hundreds of thousands of dollars, it must ensure that the house is structurally sound and in good repair. If the inspection produces disturbing results, you may be able to negotiate a lower sale price. However, depending on the severity of the problems, you may have the option to terminate your contract if you and the seller cannot agree on how to resolve the problems. Home inspection fees average between $300 and $500.
Application Fees: These cover the costs of processing your new loan application and include fees such as credit checks and administrative fees. Application fees depend on the lender and the work involved in processing your loan application.
Redemption fees: If the seller has an expected mortgage and you take over the remaining balance of the loan, variable fees may be charged depending on the amount remaining.
Lawyer fees: In some states, a lawyer must be present when buying a property. The rate depends on the number of hours the lawyer works for you.
Interest prepaid: Most lenders require buyers to pay interest accrued between the settlement date and the due date of the first monthly mortgage payment. So be prepared to pay this amount when you are finished. It depends on the amount of your loan.
Loan Training Fees – These are significant fees. Also called subscription fees, administration fees, or processing fees. The loan creation fee is a lender’s fee to assess and prepare your mortgage. This can cover document preparation, notary fees, and the lender’s legal fees. Expect about 0.5% of the amount you have borrowed.