Before you take the leap and purchase a home, it is essential to plan for all costs that may arise. While many are aware of how much they need to save for a down payment, few understand what closing expenses will be due at the conclusion of their transaction. To prevent any surprise fees when finalizing your property purchase, familiarize yourself with both what these charges entail and how much should be set aside in advance.
Closing costs can be split into two categories: those that are paid by the buyer, and those which are paid by the seller. Buyer costs range from pre-paid items such as homeowners insurance and property taxes to lender fees for loan origination and appraisals. These costs typically amount to between 2-5% of your home’s purchase price. Seller expenses, on the other hand, include any commissions due to their real estate agent or broker and may even cover some of the buyer’s closing expenses.
In addition to understanding what is included in closing costs, it is important to know when these payments need to be made. Generally speaking, buyers should expect a breakdown of all estimated closing expenses once they are under contract and have obtained a loan. At this time, borrowers can begin to save the necessary funds in preparation for closing. Once they are ready to sign all documents, buyers will be required to pay the due fees before ownership is transferred.
By taking the time to research and budget ahead of time, you can ensure that your home purchase process runs smoothly. Understanding what closing costs entail and how much needs to be saved will help prevent any unexpected surprises at the close of escrow. With these tips in mind, you can focus on finding the perfect property without worrying about financial hiccups along the way.
To many individuals' surprise, closing costs exist and are often unknown. Bankrate sheds light on the matter:
“Closing costs are the fees and expenses you must pay before becoming the legal owner of a house, condo or townhome . . . Closing costs vary depending on the purchase price of the home and how it’s being financed . . .”
To put it succinctly, your closing costs encompass the expenses and payments related to your transaction. Depending on where you live or what type of situation you are in, Freddie Mac states that these fees may differ; however, typically they include:
It's critical not only to comprehend what closing costs consist of, but also recognize how much you'll need to allocate for them. According to the Freddie Mac article cited above, typically it is 2-5% of your total home purchase price that needs funding for these fees. With this knowledge in mind, here are tips on how you can anticipate what expenses will be necessary when covering your closing costs.
If you've found the home of your dreams, and it costs a median rate of $366,900, then don't forget to factor in closing fees that could range from an estimated 2-5% with Freddie Mac. This means you would be looking at expenses between approximately $7,500 - $18,500.
Remember, if you are looking for a home that is more or less expensive than this price range, your closing costs will subsequently fluctuate.
Now that you have an understanding of what closing costs encompass, and a general range of what to expect for your particular purchase price, you are one step closer to becoming a homeowner. Make sure you factor in the additional expenses when preparing your budget: having this information up front can help make the home-buying process much smoother.
Freddie Mac offers invaluable advice for prospective homebuyers, urging them to:
“As you start your homebuying journey, take the time to get a sense of all costs involved – from your down payment to closing costs.”
Looking to purchase a home? Work with an expert team of real estate professionals who can help you understand exactly how much your closing costs will be. Your agent can link you up with the best lender, and then all together they'll answer any questions or queries that arise throughout this exciting process.
Having the right team on your side can make all the difference. Make sure you have an understanding of these closing costs in advance to ensure a successful, stress-free closing day!
Preparing for closing costs is one of the most crucial steps in the home-buying process. So, it's critical that you have a reliable plan in place prior to signing any documents. Rest assured, I am here to guide and support you throughout this entire journey so that your experience remains stress-free! Let’s get together soon so we can help bring clarity and confidence into your dream purchase today.
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