What You Should Know About Closing Costs

It is critical to plan ahead of time when purchasing a home. While most buyers consider how much they need to save for a down payment, many are surprised by the closing costs they must pay. To avoid being caught off guard when it comes time to close on your home, you should understand what closing costs are and how much you should budget for.

What Are Closing Costs?

People are sometimes surprised by closing costs because they don’t know what they are. According to Bankrate:

“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 Will You Need To 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 are typically between 2% and 5% of the 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 home 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’s the Best Way To Make Sure You’re Prepared at Closing Time?

Freddie Mac provides great advice for 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. A lender can assist you in connecting with a real estate agent, and your expert team can answer any questions you may have.

Bottom Line

It’s important to plan for the fees and payments you’ll be responsible for at closing. With good guidance from your lender and your real estate team, you may be able to get seller concessions or lender credit to minimize the amount that you will have to pay out of pocket. You have options, so let’s talk about them.