What You Should Know About Closing Costs
It is critical to plan ahead of time before purchasing a home. While most buyers consider how much they will need to save for a down payment, many are surprised by the closing costs. To avoid being caught off guard when it comes time to close on your home, you should know what closing costs are and how much you should budget for.
What Are Closing Expenses?
People are often taken aback by closing costs because they are unfamiliar with them. Bankrate reports that:
“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 . . .”
In other words, your closing costs are the fees and payments associated with your transaction. According to Freddie Mac, while closing costs vary depending on location and situation, they typically include:
▪ Government recording costs
▪ Appraisal fees
▪ Credit report fees
▪ Lender origination fees
▪ Title services
▪ Tax service fees
▪ Survey fees
▪ Attorney fees
▪ Underwriting Fees
How Much Should You Budget for Closing Costs?
Understanding what closing costs entail is critical, but so is knowing how much you'll need to budget to cover them. According to the Freddie Mac article, closing costs typically range between 2% and 5% of the total purchase price of your home. With that in mind, here's how you can figure out how much money you'll need to cover your closing costs.
Assume you find a house you want to buy for the median price of $366,900. Based on the Freddie Mac estimate of 2-5%, your closing costs could range between $7,500 and $18,500.
Remember that if you buy a home above or below this price range, your closing costs will be higher or lower.
What Is the Best Way to Ensure You're Prepared for Closing?
Freddie Mac offers excellent advice to homebuyers, saying:
“As you start your homebuying journey, take the time to get a sense of all costs involved – from your down payment to closing costs.”
Work with a trusted team of real estate professionals to determine how much you'll need to budget for closing costs. An agent can assist you in connecting with a lender, and your expert team can answer any questions you may have.
It is critical to budget for the fees and payments you will be responsible for at closing. Cooperate with a local real estate professional who can assist you in feeling confident throughout the process.
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