Closing Costs- Don’t Let Them Surprise You
Posted on January 13, 2021
Buying a house is expensive. Not only because of the long-term debt you’re acquiring, or the down payment you have to pay, but also because of other costs associated with the purchase of the actual home. One thing most home buyers may not be aware of, are the closing costs they need to pay as a part of buying a home. Closing costs can make up a significant part of your home buying budget and can surprise home buyers who are not prepared.
Maybe you know how much you need to save for a down payment but you don’t know how much you need to save for closing costs. Here is a quick rundown of the basics of closing costs: what they are, how much they cost, and how to save for them.
What are closing costs?
Closing costs are fees the buyer and seller are required to pay on closing day. It may be easy to get overwhelmed with closing costs because they are often made up of a dozen different fees and payments you need to make. It’s helpful to know that these fees go towards two categories: fees to own your home and payment to those who helped you buy your home (like your lender). Some of the fees are fixed and some are based on the price of your home. Below is a list of things that are usually included in your closing costs:
- Home inspection fee
- Application and processing fee
- Appraisal fees
- Property mortgage insurance
- Property taxes
- Origination fee
- Prepaid interest on mortgage
- Tax service fee
- HOI premium
- HOA fees
How much are closing costs?
The amount you pay in closing costs varies so a good way to estimate how much you might be paying is to take 2% of the home purchase price. Plan to save up this amount in cash so you can pay your closing costs and down payment in full and on time. You can also communicate with your mortgage lender about what percent it’s looking to be with your specific house and loan.
How to save for closing costs:
After you set your home shopping budget, you can estimate how much your closing costs will be by taking 2% of that price. The easiest way to save for all home buying-related costs is to set up a completely separate savings account and create automatic monthly transfers. To figure out how much you should be saving monthly, decide when you want to buy your house and divide the purchase price by how many months you have until you want to buy. The better your plan, the easier it is to save!
Are You Ready to Buy?
Lots of buyers are surprised by the actual closing costs and others are shocked at the amount of closing costs. Don’t let closing costs surprise you. Make sure you’re aware of them now and include them in your home buying budget before it’s too late. If you are looking to purchase a home, reach out above to talk to a mortgage expert and have all your mortgage questions answered.
