When you are preparing to buy a home and you hear the phrase, “Closing Costs”, do you know what that phrase means? Many first-time home buyers have no idea what closing costs encompass, so don’t feel bad if you answered, “no” to that question. Most of the time, closing costs are estimated at around 2 to 8 percent of the total value of the house you’re purchasing.
Closing costs are not included in your home mortgage loan, so you’ll need to be prepared to pay the closing costs out of pocket, unless you’re able to negotiate with the seller in your contract. In most cases, the buyer is responsible for closing costs in real estate transactions. Your real estate agent can help explain the closing costs, and will often be able to recommend service-providers for the required services, such as appraisals and home inspections.
When you apply for your home mortgage loan, your lender should give you a good faith estimate of what your closing costs should be, based on the amount you’re borrowing. You should be pre-approved for your home mortgage loan before you begin house shopping, so that estimate could change based on the value of the property you intend to purchase. Near the end of the escrow period, just before the closing date, your lender should provide you an updated tally of what your actual closing costs will be.
When you buy a house, your lender or escrow agent will need to perform a title check on the property you’re buying to make sure there are no liens or tax levies placed on the property. There will be clerical fees involved in this title search. These fees will be added into your closing costs. If the title does not come up clean, your contract can be negotiated or nullified.
Your lender may also charge an application fee, or charges for pulling your credit report to verify your qualification for the loan.
Another item added into your closing costs will be an appraisal of the property. Your lender will require verification that the property you’re buying is worth the amount you’re borrowing. A professional, independent appraiser will inspect the property, inside and out, to determine its value. The charges for your appraisal will be included in your closing costs. If the appraiser values the property at less than what is being asked, you can negotiate the cost of the property with the seller, or have the option to back out of the contract.
Once the title is cleared and the appraisal is done, a home inspection is required. A home inspection verifies that there are no major malfunctions with the property or its systems, such as roofing, heating and air, water heaters, and other major appliances. The home inspector’s fees will be included in your closing costs. If problems are discovered during the home inspection, you can negotiate to have the seller repair any malfunctioning systems prior to the closing date, you may negotiate the price so that you can pay for the repairs after closing, or you can opt out of the contract at this time.
You may be required to pay property taxes during your purchase. Property tax may also be included in your closing costs.
Homeowners insurance will be required on the property you purchase. You can figure in the cost of your homeowners insurance here as well.
Your lending agent will also earn a commission on your home mortgage loan, and that commission will be included in your closing costs, as will the commission being charged by your real estate agent. There’s usually either an attorney or an escrow agent involved in handling the funds and paperwork at closing. Those fees will also be added in to your closing costs.
By preparing in advance for your closing costs, you won’t be caught off guard when you’re asked to pay for services and service providers at closing. Closing costs can be significant, so if you’re not expecting them, it can be unnerving. Don’t be afraid to ask questions along the way, to your lender or to your real estate agent. La’Dweena Smith at Home Smith Homes will be your personal guide and adviser throughout the purchasing process, all the way to closing day. Give her a call today at 708-321-0136.