Don’t Forget to Budget for Closing Costs
When buying a home, it’s important to have a budget and make sure you plan ahead for certain homebuying expenses. Saving for a down payment is the main cost that comes to mind for many, but budgeting for the closing costs required to get a mortgage is just as important.
What Are Closing Costs?
According to Trulia:
“When you close on a home, a number of fees are due. They typically range from 2% to 5% of the total cost of the home, and can include title insurance, origination fees, underwriting fees, document preparation fees, and more.”
For example, for someone buying a $300,000 home, they could potentially have between $6,000 and $15,000 in closing fees. If you’re in the market for a home above this price range, your closing costs could be greater. As mentioned above, closing costs are typically between 2% and 5% of your purchase price.
FEES RELATING TO THE PROPERTY
Home Inspection: This might be required by the lender, but is highly recommended either way. A professional will inspect every aspect of the property and home. A detailed report will be made available that lists any issues found during the inspection. This report can find issues that can convince a buyer to exit the deal if the repairs are too costly.
Appraisal Fee: A professional will assess the value of a property prior to the lender agreeing to offer the mortgage. The lender wants to be sure it can recoup the funds issued for the loan, and this will be much less likely if the home is worth far below the loan amount.
Title Search: This is performed to verify the person selling the property has the legal right to do so. It will also seek to find any other potential issues with the title such as liens, levies, and other encumbrances.
Title Insurance: This is often required by the lender. A “lender’s policy” will protect the financial institution from future title issues until the loan is paid off. An “owner’s policy” can also be attained to protect the buyer from any potential title issues found after the sale is finalized.
FEES RELATING TO THE LOAN
Application Fee: Processing a new loan takes a few various steps. Credit checks and administrative costs will be tallied and added to the closing costs.
Loan Origination Fee: This goes by a few different names — processing fee, underwriting fee, or administrative fee. But no matter what it’s called, it will cover the process of the lender preparing your mortgage loan documents.
Prepaid Interest: Interest will accrue between the closing date and the first mortgage payment. This is often due at the point of closing.
Attorney’s Fee: The services of a real estate attorney are highly recommended throughout this process. These fees will also be included in the closing costs.
Most people that provide less than 20% of the sale price of the new home will be required to purchase private mortgage insurance. This will be required on top of the standard mortgage insurance policy. The fees of both of these are often required to be paid upfront.
There will be lots of paperwork in front of you on closing day, and not enough time to read them all. Work closely with your real estate agent, lender, and attorney, if you have one, to get all the documents you need ahead of time.
The most important thing to read is the closing disclosure, which shows your loan terms, final closing costs, and any outstanding fees. You’ll get this form about three days before closing since, once you (the borrower) sign it, there’s a three-day waiting period before you can sign the mortgage loan docs. If you have any questions about the numbers or what any of the mortgage terms mean, this is the time to ask—your real estate agent is a great resource for getting you all the answers you need.”
As home prices are rising and more buyers are finding themselves competing in bidding wars, it’s more important than ever to make sure your plan includes budgeting for closing costs. Let’s connect to be sure you have everything you need to land your dream home.
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