Buying a home involves a lot of steps and you can’t afford to be caught off guard at the last minute. Factoring in how much you’ll have to pay at closing is a smart move but many home buyers are clueless about what that involves. In a survey from ClosingCorp, more than a third of buyers admitted to drawing a blank on what closing costs are. If you’re ready to become a homeowner, here’s a quick primer on what you’re expected to pay.
What are mortgage closing costs for?
Broadly speaking, closing costs refer to the various fees that are required to complete your home-buying transaction. Some of the most common costs you may have to pay at closing include:
- Credit check fees
- Loan application fee
- A percentage of your property taxes and insurance if you’re escrowing these costs into your loan
- Homeowner’s association fees if you’re subject to HOA rules and are escrowing these costs
- Escrow fees
- Upfront mortgage insurance premiums (Required if you’re putting less than 20% down on a conventional loan or getting a federally-guaranteed mortgage, such as an FHA or USDA loan)
- Home warranty if you’re purchasing one
- Title fees
- Title insurance
- Loan origination fee
- Attorney’s fees
- Notary fee
- Document preparation fees
- Mailing fees
Before you go to closing, your lender is required to issue you a closing disclosure three business days before closing is scheduled. This disclosure breaks down all of the various fees you’re paying at closing and it gives you a final total of how much cash you need to seal the deal.
Keep in mind that there are certain costs you may be expected to prepay before it’s time to close. For example, the lender may expect you to pay for the appraisal, home inspection, pest inspection or survey to make sure the home is sound before they’ll sign off on your loan.
How much does it cost to close?
The actual dollar amount you’ll spend at closing depends on a number of factors but according to Zillow, the typical home buyer can expect to shell out between 2% and 5% of the purchase price. On a $250,000 home, your closing costs could be anywhere from $5,000 to $12,500.
One other important distinction to make is that your closing costs are separate from your down payment. So if you’re putting 20% down on that same $250,000 home, you’d need $5,000 to $12,500 for closing costs plus an additional $50,000 for the down payment.
Is there a way to reduce closing costs?
Homebuyers have two basic options for shaving a few bucks off their closing costs total. The first is to ask the seller to pick up part of the tab. Depending on the type of loan you’re applying for, the seller can chip in up to 6% of the purchase price towards closing. Going back to the previous example, that means you could get as much as $15,000 paid by the seller.
The other option is to attempt to roll some of your closing costs into your mortgage loan. While this saves you some money out of pocket, there is a catch. In exchange for adding these costs to the loan, you’re increasing what you have to borrow. Not only that, but the lender may raise your interest rate for the convenience of letting you finance closing costs.
Even a difference of 0.25% can make a big impact in how much you’ll pay for your home over time. A $250,000 30-year loan with a rate of 4% would cost you $429,674 when it’s all said and done. If the rate goes to 4.25%, the total climbs to $442,746, which is just over $13,000 extra you’re paying in interest. Be sure to run the numbers before locking in a no-closing cost loan to make sure it’s worth it in the long run.
Is there any other place or person or organization willing to gift a down payment to
a person whom has no family to turn to for a gift ? As such as a family member may be as bad or worse off financially ,,,,