Like luggage fees at the airport and tax on an open bar, some costs can sneak up on you.
I hate surprises.
Unlike a bday party two months ahead of schedule, you can see closing costs coming. Because whenever you seal a home deal, there are extras on your final bill.
What neighborhood are they in?
Most buyers shell out about 2%-5% of the home’s sticker price. The exact amount will depend on your down payment, mortgage type, credit score, and location. Closing costs on a $300,000 home could be anywhere from $6,000 to $15,000.
And what does this money get me?
Here’s a breakdown of some common closing costs:
Lender fees: what you pay for a bank or credit union to process and evaluate your mortgage app
Origination fee: an admin fee, also courtesy of your lender
Appraisal fee: what it costs to determine your new home’s market value
Home inspection fee: because most lenders won’t give you the stamp of approval until they’re sure the property is in good shape
Property taxes: you may have to throw down a couple months’ worth
Homeowner’s insurance: some lenders require you to prepay up to a year’s worth of premiums
Mortgage insurance: putting down less than 20 percent? You can probably count on a new budget item called private mortgage insurance. Some federally-backed loans also require mortgage insurance.
Title fees: stuff most buyers never think about, like what lenders charge to make sure no one else has claims to the property and what it costs to cross out the old owner’s name and replace it with yours.
Can’t someone else pay?
Maybe. Your lender will give you a list of estimated costs once you apply for a loan. You can compare the closing fees with other lenders, then negotiate with each one. The seller may also be willing to cover some – or all – closing costs to get the deal done. So don’t be afraid to ask.
Related: How to Be a Better Negotiator
If this is your first homebuying rodeo, you could qualify for gov programs that help cover closing costs. Check your state or local housing agency for more.
If none of that pans out, you might be able to add the closing costs to your mortgage. But if you go this route, you’ll have to pay interest. Meaning you’ll pay more over time than you would if you wrote the check right now.
Anything else I should know?
Your lender might let you buy discount points at closing, too. That’s when you give them money to get a lower interest rate. One point usually = 1% of your mortgage amount. That could be a good deal – if you have the cash on hand.
If you don’t pay closing costs, you cannot pass go, collect $200...or buy a home. So get them on your radar early in the process. Then brush up on your negotiating skills and look for creative ways to pay less.
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