You’re ready to buy your first home. What an exciting time! You’re probably prepared to make a down payment on the home you select, but did you know that there are other fees to consider during the home buying process? You may be asked to make a good faith deposit, and there is a good chance you’ll have to cover closing costs out-of-pocket.
What are closing costs?
The term closing costs it a broad term that can be confusing to first time buyers. When you purchase a house, you secure a loan from a home mortgage lender. This could be your bank or another type of lender.
The lender will check your credit score by running your credit report. They will request an appraisal be completed by a professional real estate appraiser. During the home buying process, several inspections will take place to ensure that everything is in good order for the sale to move forward. These inspections cover everything from the roof condition to checking for insects. The land may need to be surveyed if there are questions about the property lines in place.
You may have attorney fees for consultations and searches made on the condition of the title. If there are problems with the title, there will be fees for title insurance. There are clerk fees for various paperwork tasks and other costs associated with services needed.
All of the fees from services listed above are added together to create one fee that is called the closing costs. No single person or business determines these fees. Because of the number of people involved, it’s difficult to get an accurate estimation of the fees when you begin the buying process.
How much are closing costs?
Nothing is set in stone, but you can expect to pay between two and five percent of the cost of the home when paying closing costs. Some fees are small, such as the fee for running your credit report. Other fees are more substantial, such as the cost for the appraisal.
To put this into numbers, let’s say that you’re purchasing a house for $200,000. At the highest end of five percent, you can expect to pay around $4,000 in closing costs.
Once you apply for a mortgage loan and are ready to make an offer, the lender will provide you with a Good Faith Estimate of the closing costs. This estimate is subject to change as you move through the home buying process, but it does give you a good idea of what you can expect. Be prepared for the estimated amount to increase. Just before closing day, you will receive an accurate list of the amount you’ll owe at closing.
Double check the lender’s list of fees. In some cases, these fees can be negotiated. Also, you want to make sure no cost is inflated or unnecessary. If the numbers don’t add up, you are free to walk away from that lender and seek your mortgage loan elsewhere. During this critical stage in the process, you’ll want to rely heavily on the wisdom and advice of your real estate agent. They can help you determine which fees are necessary and where things can be negotiated.
Do I have to pay these costs?
It isn’t common, but there are rare times when a lender will allow you to add the closing costs into the mortgage loan amount. While this may mean you are paying less out-of-pocket during the sale, it does mean you’ll end up paying more in the end because you’ll be paying interest on that added amount.
There are times when a seller will decide to cover all or a portion of the closing costs. This agreement can be negotiated and added to the contract. However, being willing to cover this cost yourself could benefit you if it comes down to a bidding war between offers. If a seller is choosing between an offer where they have to pay closing costs and your offer where they don’t, there is a good chance your offer will be chosen.
When you consider the deposit, down payment, and closing costs, you may find that a substantial amount of money is needed to buy a house. It’s a good idea to plan ahead when saving money. You want to have enough on hand to cover these combined costs and any that are unexpected. Seek the advice of your real estate agent to get a better idea of what you can expect specific to the home you are purchasing.
Contact The Eastside Real Estate Team today at 425-200-4093 to tour available homes for sale or to discuss selling your house.